Retail

Consumer fundamentals are expected to continue to improve, but at a more moderate rate. Retailer expansion plans will lead to steady rental growth. Retail parks, as well as high street assets and shopping centres in the prime segment, are likely to outperform.

Key Takeaways

1. Consumer fundamentals are expected to continue to improve in 2025. A steadier increase in disposable income is forecast, while further rate cuts are likely to aid in boosting confidence and stimulating demand.
2. Leasing activity will accelerate, as retail occupiers realise expansion plans. Steady rental growth is expected across high streets and shopping centres. Availability will remain a challenge in prime locations. Certain occupier types with very large units will look to reduce their unit sizes, however.
3. Retail parks are likely to see stronger rental growth than other asset types, due to having the strongest occupier demand combined with the lowest vacancy rates. High street locations and shopping centres in the prime segment are also expected to see robust rental growth, however.

Recovery to continue in 2025

Consumer fundamentals to continue to improve, but at more moderate rates

In 2024, European consumers saw a significant improvement in financial strength. A fall in headline inflation, combined with continued nominal wage growth, significantly increased disposable income, particularly in the second half of the year. According to Oxford Economics, inflation-adjusted personal disposable income is expected to have grown by 2.4% in the Euro Area and 3.2% in the UK in 2024, and now stands well above pre-pandemic levels in both markets (Figure 16). Consumer confidence also improved. 

Further improvement is expected in 2025, but at a more moderate rate. Inflation-adjusted personal disposable incomes are forecast to rise by 1.2% in the Euro Area and 1% in the UK, according to Oxford Economics. Combined with the effects of further rate cuts, this should act as a positive stimulus to retail sales growth.

Leasing activity expected to accelerate, but availability will remain a challenge

As a result of improving consumer fundamentals, leasing activity is expected to strengthen throughout 2025, as occupiers realise expansion plans across all retail asset types. In our European Retail Occupier Survey 2024, 72% of retailers indicated that they plan to expand their store portfolio in the short-term (Figure 17). This is particularly evident in the value segment, where 83% of respondents signalled expansion intentions.

Figure 16: Personal disposable income, inflation adjusted (Index Q4 2019 = 100)

Figure 17: Retailer plans for number of stores in short-term

Quick service restaurants, sporting goods, athleisure, home furnishings, and clothing and footwear retailers are most bullish on expansion plans. Retailers report that the focus of their growth will be existing markets, with entry into new markets a secondary consideration. Key money is expected to continue to play a role in certain markets in 2025, as retailers compete to secure the best locations. Brands will look to ‘fill out’ their catchment and trial new store formats of different sizes and different locations.

Availability will remain a challenge, however, with vacancy rates on prime high streets and in prime shopping centres remaining at tight levels. Retailers will likely be prepared to compromise on unit size, but not on location.

For hypermarket retailers and cinema operators where premises exceed 10,000 sq m, units may be downsized, as occupiers look to cut costs. The same is likely for electronics stores with floor areas greater than 2,500 sq m.

Rents to see steady growth

As a result of improving consumer strength and sustained occupier demand, we expect prime rental growth of 1.9% at a European level in 2025 (high streets and shopping centres weighted average) under our baseline scenario, as rents continue their recovery and move closer towards pre‑pandemic levels (Figure 18). The UK, Italy, and Central Europe are expected to outperform the average and see stronger growth.

However, macroeconomic performance aligned with either our upside or downside scenario, explained in our Economic Outlook, will have a significant impact on the sector’s performance. Under our upside scenario, rents are forecast to grow by 2.6% at a European level, bolstered by a stronger consumer. In our downside scenario, we expect rental growth of just 0.6% amid increased consumer caution.

The possible imposition of tariffs on European goods by the Trump administration remains a downside risk. If tariffs are implemented and Europe retaliates, retail sales could fall as a result of increased prices, leading to weaker occupier demand and lower rental growth. Other possible downside risks include higher energy prices squeezing real incomes, and political uncertainty affecting consumer confidence, both of which could hit retail sales.

E-commerce penetration levels have been flat across most European markets over the past two years. The whole sector will continue to closely monitor developments in this space.

Retail parks to see greater rental growth

We expect retail park rents to grow more rapidly than those of other asset types. Retail parks are the top choice for occupiers looking to expand, according to our survey. They also have the lowest vacancy rate among assets tracked in CBRE’s European Shopping Centres Performance Index. The index is comprised of retail assets under CBRE management and currently includes 155 assets in 12 European countries.

Retail park vacancy stands at just 1.2% at a European level as of Q3 2024. This compares with 5.8% for the overall Index, in which vacancy is now lower than in 2019. Strong demand, coupled with extremely tight vacancy, is likely to lead to comparatively higher rental growth in the segment. High streets and shopping centres in the prime segment will also continue to see strong tenant demand.

Figure 18: Top European retail locations prime rental change and forecast (% p.a.)