UK retail is not expected to recover to pre-pandemic in-store sales levels until after 2030, according to AEW.

However, AEW’s monthly European research report predicts that in the rest of Europe, where e-commerce penetration has been less prevalent, in-store sales will be 4% higher in 2026 than the pre-pandemic level of 2019.

European in-store sales are also expected to grow 1% annually for the 2026-30 period.

Despite lower sales growth projections for physical stores, many legacy retail operators need them to execute their omni-channel strategies, AEW said. Online sales are expected to grow by 6% annually in the UK and 8% in the rest of Europe for the 2026-30 period.

Meanwhile, the UK, Germany and the Netherlands have relatively high vacancy levels at 12%, 11%, and 10%, respectively.

Hans Vrensen, AEW head of research and strategy, Europe, said the European retail market had “experienced the most improvement in recent manager sentiment ahead of the other four core real estate sectors, after its substantial and long-lasting repricing, which began much earlier than other sectors, in 2017”.

He added: “The macro-economic factors driving retail have become more supportive and European retail sales are projected to grow by 1.5% annually over the next four years.”

AEW projects that core retail yields will tighten by between 10bps and 30bps by 2030. Retail parks are expected to have the best total annual returns, at 9.1%, for 2026-30, followed by shopping centres at 8.6% and high-street retail at 7.2%.

Vrensen said: “While capital returns for prime retail are expected to be more moderate than other sectors, the rental growth picture is more positive. At 6.4% and 6% respectively, shopping centres and retail parks offer higher current income yields compared to the 5% average for non-retail sectors.”