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Continued retail recovery this year, but polarisation will remain
The retail sector showed signs of resilience and recovery in 2025. While consumer confidence remains volatile due to cost of living concerns, more optimistic sentiment has translated into year-on-year retail sales growth since June, and we forecast this metric to increase by 1.9% in 2026.
The occupational market is expected to continue to perform well. Vacancy rates declined in 2025, with retail parks exhibiting the lowest vacancy rates at 6.1%* and major Central London streets at c.5% or below. In 2026 we expect there to be a continued shortage of supply in these sought after locations, while the top shopping centres are nearing full occupancy.
As a result, rents will further increase in top locations. Retailers will confront intense competition for space on major Central London streets. Retail parks have seen the strongest five-year rental growth (4.7%)**, and low levels of new supply, coupled with strong demand, will continue to place upward pressure on rents. While shopping centre rents remain below pre-pandemic levels, they experienced the greatest gain in prime rents in 2025, with further recovery expected this year**.
The new business rates multiplier system announced in the 2025 UK Budget is generally positive as it provides relief for many retail premises due to permanently reduced rates. However, larger stores with rateable values of more than £500,000 will face higher rates and increased operational costs.
The market will remain very polarised, with locations outside the top bracket continuing to face challenges. While a lack of availability in prime locations may be leading some brands to consider the next tier, higher vacancy levels need to reduce before rental growth will materialise. Non-flagship locations with underutilised space and lower footfall will continue to evolve and transition to alternative uses such as healthcare, leisure, and living, which could benefit the existing retail offering.
Christmas trading data will determine whether a cautiously positive sentiment continues into 2026. However, this year will see varying outcomes for retailers as they navigate data-led portfolio strategies, escalating operational costs, and the demand for experiential hubs.
Figure 7: Retail sales volume and consumer confidence index
(January 2023 – November 2025)
Trends to watch
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Experiential retail
Many retailers will continue to invest in their stores through experiential retail, as consumer preference for spending on experiences over material goods grows. Strategies include upgrading customer service, changing store formats, and hosting events to create community and drive loyalty. Owners and investors of multi-unit assets will continue to broaden tenant mix, incorporating food and beverage, leisure, healthcare, and wellness.
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Strategic real estate
Retailers are laser-focused on choosing the right location and retail format to support their strategy. We are currently tracking over 1,300 active requirements in Central London, equating to around 6 million sq ft.
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In-store and online
Brick-and-mortar stores will remain the dominant sales channel, however, offline and online will become more seamlessly integrated. To support this shift, retailers are investing in store infrastructure to accommodate fulfilment processes such as click-and-collect and in-store returns for online purchases. The latter trend is partly driven by more retailers charging for online returns to reduce processing costs. These integrated channels could drive more footfall and benefit instore sales.
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Taxation
The Government has confirmed withdrawal of customs duty relief for goods valued at £135 or less entering the UK. While full implementation is not expected before 2029, this should ensure a level playing field for UK retailers and remove tax disadvantages.
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Optimisation
Market volatility and affordability will remain an issue for retailers driven by economic uncertainty. Many multi-site retailers will continue to optimise their portfolios through regears, refits, and rightsizing in key markets. With rising operational costs, including higher minimum wages, there will be a focus on automation to boost efficiency and reduce long-term costs.