Retail

January 2026 Forecast

Stabilisation of retail sales growth, with downside risks

Our baseline forecast is for retail sales volumes in Western Europe to grow by just under 2% this year, similar to last year’s growth rate. Risks are mildly skewed to the downside. Consumer confidence remains subdued, real income growth is slowing, and household savings rates are rising, suggesting consumer caution. 

Midyear review

• The outbreak of the US-Iran conflict in February has exacerbated the downside risks we identified at the start of the year. Elevated energy costs are putting upward pressure on inflation in the Euro Area. Real personal disposable income fell in the UK in the early part of the year, but remains positive in the Euro Area, driven mainly by Southern Europe, with France and Germany seeing no growth. Household savings rates are still elevated relative to historical levels but continue to trend downward. Consumer confidence in both the UK and the Euro Area fell to levels last seen around two years ago following the outbreak of the war, though has since started to recover. However, the correlation between sentiment and spending is now much weaker than in the past.
• Overall, the outlook points to a weaker consumer environment, with already slowing wage growth, combined with increasing inflation, weighing on spending power.
• Retail sales are still growing in real terms, though the rate of growth across Europe is slowing and is uneven across markets. We have revised down our expectation for full-year retail sales volume growth in Western Europe to be around half the level expected at the start of the year.

January 2026 Forecast

Continued retailer expansion, focused on prime locations

Retailers will continue their expansion strategies, focusing on prime sites, and express willingness to compromise on unit size, but not on location. In the high street segment, strong competition combined with low vacancy rates suggest rents for the best units will continue to be bid above quoted levels. Shopping centre rents will also trend stronger, moving away from last year’s convention where their growth was largely index-linked.

Midyear review

• Despite the weaker consumer landscape, we have not observed retailers reducing their expansion plans. Retailers continue to grow their store portfolios, with a focus on the best locations. Fierce competition mixed with low-to-zero vacancy rates on prime high streets is resulting in lease terms shifting in favour of landlords. Key money, a payment made by prospective tenants to either landlords or outgoing tenants to secure a lease, has now returned across many European high streets, and has now reached the shopping centre segment, with retailers paying to secure units at select schemes.

January 2026 Forecast

Retail park outperformance

Retail parks continue to see strong occupier demand and virtually no vacancy. We see another year of rent growth outperformance in this segment, though certain markets may see flat rents due to a large amount of supply coming on stream.

Midyear review

• Retail parks continue to have the lowest vacancy rates of all asset types, according to CBRE’s European Shopping Centres Performance Index. The current retail park vacancy rate of 3% is approximately half the index average of 5.7%, which is below 2019 levels. Our index also suggests rents have grown strongest in this asset type so far this year, jointly with suburban malls. Demand for retail parks continues to be robust, both from occupiers and investors, and the sector’s strength continues in line with our early-year predictions.

H2 2026 Outlook

Consumer spending power will remain under pressure this year

Energy prices in Europe remain elevated amid the US-Iran conflict. We anticipate inflationary pressures to persist throughout the remainder of the year, potentially impacting consumer purchasing power. The impact on retail sales will be uneven, however, with Germany and France expected to see subdued sales growth, while stronger growth is expected in the UK, Southern Europe, and the Nordics.

Three factors could potentially provide an upside risk to the current retail sales outlook. Firstly, inflation-adjusted personal disposable incomes are c. 3% higher in the UK, and 8% higher in the Euro Area, when compared with pre-COVID levels, according to Oxford Economics. This suggests a higher degree of consumer resilience than in previous crises that affected prices, such as COVID or the Russia-Ukraine war. Secondly, household savings rates are elevated relative to long-term averages. While higher savings rates are generally seen as a negative for retail sales, they could provide a buffer against rising prices in the current climate. Finally, Europe’s tourism recovery continues, with markets such as France, Spain, and the Nordics seeing tourist arrivals anywhere from 10% to 25% above pre-COVID levels, providing a boost to spending.

Figure 11: Gross disposable income of households in real terms per capita (seasonally and calendar adjusted, index Q4 2019 = 100)

Despite consumer weakness, retailer demand will remain robust

Somewhat paradoxically, we expect occupier demand to remain strong throughout the remainder of the year, despite the relatively weak consumer picture. Preliminary results from our European Retail Occupier Survey 2026, launched after the outbreak of the US-Iran conflict, suggest approximately two-thirds of retailers plan to expand their store portfolio in the near-term. This is because stores increasingly serve as a visual showcase and expression of brand identity, with brands focused largely on flagship formats.

Demand will therefore continue be concentrated in the prime segment. Retailers are increasingly adopting a “real estate first” approach, taking prime sites as and when they become available, as opposed to insisting on a set order of store location openings within a certain market. However, we expect to see nuance between goods types. While mass-market fashion, health and beauty, and the newer generation of outdoor/performance sports brands are expanding aggressively, some legacy sportswear brands are less active. Demand from luxury retailers is also muted and selective, reflecting still-weaker trading conditions in that segment.

A continued shortage of available space in the prime segment will continue to push up rents, both for high streets and shopping centres, with lease terms in favour of landlords, and key money continuing to be a feature of the occupational market. The shortage of prime space presents a problem for occupiers, where availability is now the main constraint on realising expansion plans.

An emerging theme is the renewed interest in secondary space caused by the lack of availability in prime. Value retailers are currently driving this trend, though we expect demand to gradually move into higher price segments. The establishment of new prime pitches is possible, if a sufficient critical mass of occupiers opt to open stores in locations previously considered secondary, as a result of the lack of prime availability.

Figure 12: European retail prime rent index (Q1 2018 = 100) and annual change (%)