Retail sector weathers geopolitical storm
A quieter first half for deal activity should not obscure the bigger shift underway in UK retail. Stronger occupational signals, constrained supply and renewed lender appetite are continuing to change the investment conversation for the better.
17 July 2026
In the first six months of the year, UK retail investment volumes stood at £2.09bn – down 17% on the same period in 2025, as geopolitical instability, inflation concerns and movements in swap rates prompted many buyers and sellers to delay decisions.
Transaction volumes, though, are only one measure of momentum. Despite the slower investment market, several retail occupational and performance indicators continued to strengthen. Retail delivered the strongest total returns among the major property sectors for a second consecutive year, up 8.3% in the 12 months to May 2026 – outpacing industrial and offices. Our forecasts suggest retail will continue to outperform in 2026, with returns expected to reach over 7%.
According to our H1 Retail Investment Update, the sector appears in better shape than the transaction data suggests.
A pause in activity
Optimism about UK retail investment was high at the start of 2026, but was soon derailed by renewed global uncertainty. Conflict in the Middle East, the closure of the Strait of Hormuz, inflation concerns and a spike in five-year SONIA swap rates – from 3.5% at the start of March to as high as 4.4% in May – all weighed on sentiment.
Against that backdrop, it’s unsurprising that we saw some sales deferred and some buyers waiting for greater clarity. Retail spending, however, has held up well. Retail sales volumes grew by 2.9% between January and May, while sales values rose by 4.9%, outperforming 2025 growth of 1.7% and 3.3% respectively. Vacancy rates continue to fall across all retail subsectors, while new development remains limited, and online penetration plateaued at around 28% of all retail sales.
Retail sales in the first part of the year – a key barometer for retailer trading conditions– actually outperformed what was already a very profitable year in 2025, showing great resilience despite global macro-economic challenges.
Where the recovery is strongest
Out-of-town vacancies are at a record low of 4.8%, with many markets showing very limited availability, while rental growth reached 3% in the 12 months to May 2026. This combination of limited supply and sustained occupier demand continues to support investor interest.
Foodstores tell a similar story. Volumes were around 47% lower than in the same period in 2025, but demand remains broad; the constraint is the scarcity of openly marketed stock.
High streets are also showing signs of renewed demand. More than half a dozen UK institutions are actively targeting high street investments, particularly well-let parades with strong covenants in prime pitches. This suggests the sector’s recovery is extending beyond opportunistic buyers. Institutional capital is beginning to re-engage with parts of the market that, until recently, many had written off.
Shopping centres are the clearest test
The most striking market shift is in shopping centres. In the first half of 2026, they were the only retail subsector to record an uplift in deal volumes, rising 95% to £870m. More than £1bn of shopping centre sales were either under offer or on the market at the time of the report, with volumes expected to move back towards long-term averages should market conditions remain stable.
Large regional malls, particularly those that have been invested in and repositioned, continue to provide critical mass for shoppers and occupiers. With little prospect of major new retail development, dominant existing assets have become harder to replicate.
Investor behaviour is beginning to reflect this. We see continued appetite from major UK REITs, Frasers’ ongoing acquisition activity, Redical’s purchase of Merry Hill, and the ongoing sale of Metrocentre as a bellwether for the sector. Debt markets are also helping to underpin demand, with lending margins for the best centres now below 2%.
Five years ago, many investors were still questioning the future of shopping centres. Today, the debate is becoming more asset-specific: focused on which centres are dominant, investable and capable of supporting the right occupational strategy.
The next phase
The retail recovery should continue. Investors will be drawn to the high-income return, limited new supply, occupational resilience and the critical role of physical stores in an omnichannel market, but with availability low, sourcing stock remains challenging. Demand is broad across all subsectors, but the first half of the year has already made one thing clear: deal volumes can fall even when fundamentals improve. The retail investment case is stronger than it has been for a decade, so when we see stabilisation in the capital markets, we should witness a meaningful uptick in deal volumes.
Explore our retail report, where we cover the year so far, along with our outlook for what is to come.
