Retail property “turned a corner” in 2025 and outperformed all traditional property classes, according to research from Knight Frank.

UK retail real estate produced 9.2% total returns up to Q3 2025, the strongest performance of all traditional property sectors, outperforming industrial (9.1%), offices (3.2%) and all property (6.6%).

Within retail, shopping centres and foodstores were joint top performers, each delivering 10.2% returns, following a pivotal year for the resurgence of physical retail.

The overall sector is forecast to deliver total returns of around 9.5% in 2026, Knight Frank added.

Online retail’s share of the overall market has levelled out at around 28% and retailers are now reallocating capital back into their physical estates, according to the research.

Total retail investment volumes for 2025 are forecast to reach £5.83bn, down 17% year on year and 8% below the 10-year average, with the shortfall largely driven by a lack of available stock rather than weakening demand.

Sam Waterworth, partner, high street – capital markets, at Knight Frank, said: “Retail has decisively turned a corner, with 2025 marking the high street’s rebound.

“Occupational markets are the strongest they’ve been in over a decade and pricing has rebased, which is clearly reflected in retail’s total return performance. Retail’s high-income return and improving rental dynamics continue to attract capital, with an increasing numbers of investors deploying where cashflows are durable and risk is appropriately priced.”

Foodstores emerged as one of the most sought-after retail asset classes last year, with a renewed uptick in sale-and-leaseback deals, culminating in an end-of-year blockbuster £568m sell-off by Asda.

Meanwhile, shopping centres recorded a dramatic turnaround in sentiment and performance with transaction volumes accelerating sharply in H2, when more than £1bn was traded, and prime net initial yields tightened by 25 basis points to 7.25%.

Major deals in 2025 included Frasers’ acquisition of Braehead Shopping Centre in Glasgow for around £220m and Hammerson’s completion of a £319m deal to acquire joint venture partner CPP Investments’ 50% stake in Birmingham’s Bullring and Grand Central.

Will Lund, head of retail – capital markets at Knight Frank, said: “With online penetration flatlining and retailers reinvesting in physical space, the narrative around retail has fundamentally changed.

“Shopping centres and foodstores are now leading performance across all real estate, while retail warehousing remains the occupational darling. Across the board, retail is a holistically investable sector.”