No longer ‘unloved’: retailers investing more in physical stores, UK data shows | Retail industry
UK retailers are investing more in bricks and mortar, while shopping malls and food stores are also leading the revival, according to the research.
Retailers and real estate investors are reallocating capital to brick-and-mortar stores, according to real estate group Knight Frank.
The shift represents a backfill for high streets and shopping centers after a difficult decade that resulted in the closure of most stores during pandemic lockdowns and an accompanying surge in online shopping.
Growth in online retail has plateaued at between 26% and 28% of overall retail sales since a peak of 35% in mid-2020.
Knight Frank said retail had outperformed all other types of commercial property this year, with a 9.2% return on investment in September. This rate is ahead of industrial properties with 9.1% and offices with 3.2%.
Shopping malls and food stores have been the best performers this year, each posting 10.2% return growth.
Malls are now looking for ways to attract visitors with “experiences” to complement the stores and activities like zipwires and darts. Knight Frank said that while larger centers were doing well, smaller and older shopping centers were suffering as retail chains opted for fewer large stores.
Next year, retail real estate is expected to generate a 9.5% return on investment.
Will Lund, head of retail capital markets at Knight Frank, said: “The narrative around retail has fundamentally changed, with online penetration stabilizing and retailers reinvesting in physical space. We have great confidence that this demand will return to the highest investment volumes in a decade in 2026 and we expect a busy year.”
In November, Mark Allan, managing director of commercial property development and investment company Landsec, said: was prioritizing purchasing more retail assets in the next 12 to 18 months sector that has long been considered “unpopular”.
Landsec, which owns and manages major shopping centers including Bluewater and Trinity Leeds in Kent, has sold £295m of offices as it moves into retail and residential. The company is in talks to buy the Silverburn shopping centre, near Glasgow, for £250 million early next year.
Another major developer, British Land, focuses mainly on London office campuses and retail parks. “Office attendance is accelerating, retailers are expanding out of town and supply remains highly constrained in both markets,” said chief executive Simon Carter.
Many shopping malls have changed hands this year, while supermarkets and other food stores have increased their sales and leaseback transactions.
Knight Frank is managing the sale of Merry Hill, near Dudley, and plans to sell the West Midlands shopping complex for £300 million with bids from 10 investors.
Last month, Sports Direct owner Frasers Group bought the Braehead shopping centre, near Glasgow, one of Scotland’s busiest centres, from SGS UK Retail in a deal reportedly worth £220 million.
Knight Frank estimates £5.8bn will be invested in retail assets in 2025; This is down 17% from the previous year due to property shortages. Transaction levels rose in the second half of the year, and this momentum is expected to carry over into 2026 as pricing strengthens.
Charlie Barke, Knight Frank’s head of capital markets, said: “We have fewer willing sellers as people wait for these assets to start performing well again. So the supply of stock to the market is limited for the first time in a long time and demand for investments is now outstripping supply in the retail sector.”
Nationwide, 13.5% of stores sit empty; This is the lowest vacancy rate since 2020, and a further decline is expected next year.
On the high street, shops worth £420 million were traded in the second half of 2025; This was up 150% from the first half. Major centers and regional cities are expected to see rent increases of 6.9% this year.
Sam Waterworth, a partner at Knight Frank, said: “Retail has decisively turned the corner, with 2025 pointing to a high street recovery.”
