Retail

January 2025 Forecast

Modest sales growth

Although consumer confidence dipped towards the end of 2024, sales volumes have broadly continued to improve throughout the course of the year. During 2025, sales are expected to see further modest growth, driven by an increase in real household income, and will be further supported by the increasing offering of ‘Buy Now, Pay Later’ services by retailers. Additional base rate cuts should also help stimulate consumer spending.

Mid-year review

• Consumer confidence remains volatile, showing month-to-month swings despite a general year-on-year improvement. In June it rose to 18, indicating higher optimism about personal finances.
• UK annual average wage growth increased by 5.5% in May, outpacing price inflation that rose to 3.4%. This, in turn, boosts real household income.
• Retail sales started the year 0.3% higher than the January 2024 level and, since then, have risen month-over-month until April, increasing 1.8% in June. Over the coming months, we foresee a modest increase.
• We note that there are plans to regulate Buy Now, Pay Later products commencing in 2026, and consultation is already underway.
• Interest rate cuts are expected to continue, which should boost consumer spending.

January 2025 Forecast

E-commerce to continue to grow modestly

The UK online penetration has grown steadily throughout the year. According to ONS, 27.7% of all retail sales in the UK in November 2024 occurred online, up from 25.8% in January that year. Looking to 2025, online penetrations are expected to see continued organic growth, driven by underlying demographic trends. However, several retailers introduced return fees to mitigate the costs of ‘serial returners’, which could dampen online sales growth – particularly in the fast fashion sector.

Mid-year review

• Online retail penetration in the UK has been increasing since the beginning of the year, settling at 27.8% in June, according to ONS.
• Clothing & Footwear accounts for the largest share of online sales (27.6%), while non-food goods represent 24.3%.
• Our 2025 UK Consumer Survey shows that 52% of consumers prefer to buy in-store, and more than 50% prefer to go to the physical store to return an online purchase.
• We foresee that online penetration will continue to grow organically, but physical retail will remain a core component of occupiers' business strategies.

January 2025 Forecast

Prime space to become increasingly scarce

In 2024, the all sector vacancy rate remained stable, though variances exist across the sub-sectors. Looking to the year ahead we may start to see some compression of this metric. Retail Parks continue to exhibit the lowest vacancy rate, consistently declining since 2021. While average in-town vacancy rates for High Streets and Shopping Centres remain elevated, prime locations are maintaining their appeal.

Mid-year review

• Retail Parks continue to have the lowest vacancy rate (declining from 6.1% in Q1 2025 to 6% in Q2 2025), as new developments remain at very low levels.
• On the High Street, vacancy rates have continued to tighten with limited supply in prime locations, settling at 13% in the UK and below 10% in Central London.
• In Shopping Centres, strong leasing and low occupier failures drove a fall in vacancy levels in the best locations – decreasing from 17.2% in Q4 2024 to 16.8% in Q1 2025.
• Continued low vacancy has created competitive tension with retailers, bidding more aggressively to secure sites (new brands and significant upsizes are driving new demand), fuelling rental growth.
• Investment in retail remained robust totalling £3.6bn in H1 2025. Retail Parks continued to deliver the strongest activity – a trend we believe will continue in the coming months.

Figure 11: UK retail sales and consumer confidence index

Figure 12: UK prime rents index by asset type