The High Street is Back: Why Retail is Defying the Digital Doom Loop
Forget the predictions of a retail apocalypse. Investment in UK retail property is surging, with returns outpacing even industrial and office spaces. A remarkable 9.2% return on investment was seen this year (to September), a figure that signals a fundamental shift in how we view the future of shopping. This isn’t simply a bounce-back; it’s a strategic realignment, driven by a leveling off of online sales and a renewed appreciation for the physical experience.
The Plateau of Online Retail & The Rebirth of Bricks and Mortar
For years, the narrative was clear: online retail was king. The pandemic accelerated this trend, pushing e-commerce to a peak of 35% of all retail sales in mid-2020. However, growth has since stalled, flatlining between 26% and 28%. This isn’t to say online shopping is declining, but its explosive growth has moderated. This plateau, coupled with a desire for tangible experiences, is fueling a significant reinvestment in physical stores. As Will Lund, head of retail capital markets at Knight Frank, puts it, “the narrative around retail has fundamentally changed.”
Shopping Centres: From Struggling Assets to ‘Experience’ Hubs
The beneficiaries of this shift are particularly visible in the shopping centre landscape. Once considered doomed, prime shopping centres like Bluewater in Kent are actively reinventing themselves. The key? Experiences. Zip wires, darts, and other activities are being integrated to draw visitors beyond the simple act of purchasing goods. This move acknowledges a fundamental truth: people crave connection and entertainment, and retail spaces can provide that. However, it’s not a universal recovery. Smaller, older malls are still struggling, reflecting a trend towards fewer, larger stores favored by major retail chains.
Investment Flows & The ‘Unloved’ Sector’s Revival
The numbers speak for themselves. £5.8 billion was invested in retail assets in 2025, despite a 17% drop from the previous year – a drop largely attributed to a lack of available properties, not a lack of interest. Transaction volumes picked up significantly in the second half of the year, and pricing is strengthening. This demand is attracting major players. Landsec, for example, is prioritizing retail asset acquisition, selling off £295 million in office space to fund this strategy and is in talks to acquire the Silverburn shopping centre near Glasgow for £250 million. Frasers Group’s recent £220 million purchase of the Braehead shopping centre further underscores this trend.
Food Stores & Sale-and-Leaseback Deals
Beyond shopping centres, food stores are also proving to be resilient and attractive investments. Supermarkets and other food retailers are increasingly utilizing sale-and-leaseback transactions, freeing up capital while retaining operational control. This activity further boosts investment figures and demonstrates confidence in the long-term viability of physical grocery retail.
What’s Driving the Demand? Scarcity & Strong Fundamentals
The current situation isn’t just about renewed interest; it’s about limited supply. As Charlie Barke, head of capital markets at Knight Frank, explains, “We’ve got fewer willing sellers because people are expecting these assets to start to perform well again.” This scarcity, combined with increasing demand, is creating a competitive market. Vacancy rates are also falling, currently at 13.5% – the lowest since 2020 – and are expected to continue to decline. Rental growth in prime centres and regional cities is projected at 6.9% this year.
Looking Ahead: The Future of Retail Investment
The momentum is expected to continue. Retail property is forecast to deliver investment returns of 9.5% next year. This isn’t a temporary blip; it’s a recalibration. The future of retail isn’t about choosing between online and offline; it’s about creating a seamless, integrated experience. Successful retailers will be those who can leverage the strengths of both channels, offering convenience, personalization, and – crucially – a compelling reason to visit a physical store. The high street isn’t just surviving; it’s evolving.
What are your predictions for the future of retail spaces? Share your thoughts in the comments below!
