The Retail Note - Q3 Retail: Wishin’ and Hopin’.

Key Messages

• Many retail metrics are defying general pre-Budget gloom
• Consumer confidence stable in Q3 rather than weak
• A surprise slight uptick in confidence in October
• Footfall patterns remain highly erratic
• RWH footfall strong in July but weak thereafter
• All retail channels suffered in Sep…
• …but actual retail sales were very strong (vals +4.0%, vols +2.3%)
• Q3 retail sales values +3.2% YoY, volumes +1.5%
• “Real growth” QoQ of +0.9% eclipses wider GDP growth (ca. +0.2%)
• Retail vacancy rate dips below 15% for first time since 2020
• Biggest vacancy improvement in shopping centres (-40bps)
• Cases of occupier distress relatively isolated (Claire’s, Bodycare)
• Annualised retail rents increase by +2.6%...
• …spearheaded by RWH (+3.1%)
• Annualised retail total returns of 10.3% remain ‘best in class’
• But retail investment volumes remain slightly subdued
• Volumes of £1.17bn in Q3, down -4.1% on Q2
• YTD volumes of £3.75bn below £4bn in corresponding period 2024
• But a number of bellwether shopping centre deals waiting in the wings.

“Wishin’ and Hopin’ and Thinkin’ and Prayin’”. 

Hoping for the best, but braced for the worst. In common with most other sectors in the UK economy, the retail market is apprehensively awaiting the outcome of the Autumn Budget on 26 November. While still absorbing the cost-based aftershocks of last year’s Budget, retailers are now facing up to the prospect of destabilisations to consumer demand through more punitive tax measures, be they through income tax, national insurance or (heaven forbid) VAT.  

The spectre of the forthcoming Autumn Budget may be all-pervading in the narrative, but thankfully it is not reflected in many of the actual retail metrics. Indeed, our Q3 Retail Monitor paints a picture of relative resilience, positivity even. But will this prevail? The likely difference between this and last year’s Autumn Budget? 2024 was more corporate-/occupier-unfriendly, while consumers/shoppers are likely to more in the firing line this time around.

Consumers – oblivious or indifferent?

Many commentators are jumping the gun on this and the general, non-fact-checked narrative on this is of “fragile consumer confidence”. 

But negative, or rather downright lazy, assumptions around consumer confidence ahead of the Budget are not borne out in hard data. GfK’s Consumer Confidence Index was largely stable in Q3 (at -19) and actually ticked up marginally (to -17) in October. This was driven by improvements in sentiment to both personal situations and, perhaps more surprisingly, general economic prospects. Maybe Joe Public knows something that economists, financiers and political commentators don’t?

Footfall remains a weak spot in the consumer economy. As ever, footfall patterns were highly erratic across the quarter. In July, retail warehouses were the only retail channel to report footfall growth (+1.7%), whereas in August, this plaudit went to high streets (-1.1%). In September, footfall declined across the board (retail warehousing -0.8%, shopping centres -2.0%, high streets -2.5%). As is often the case, these footfall dynamics in no way correlated to actual spending patterns.

As explored in depth in last week’s Retail Note, retail sales also remain robust. In Q3, YoY retail sales values (exc fuel) grew by +3.2%, while volumes (exc fuel) were ahead by +1.5%. Strong in their own right, the Q3 figures also marked considerable acceleration on the first half of the year (Q1 vals. +1.4%, vols. +0.1%; Q2 vals. +2.1%, vols. +0.7%). This was despite relatively soft demand for food in Q3 (vals. +1.6%, vols. -1.7%). Also worth noting is the fact that demand strengthened across the quarter, while footfall trended in the opposite direction. People seemingly went out less, but when they did go out, they evidently spent more.

On a quarter-on-quarter basis, retail sales volumes grew by +0.9% in Q3. Compare this “real growth” in retail sales with the performance of the wider economy, with GDP expected to grow by just +0.2% in Q3. In simple terms, retail sales continue to outperform the wider UK economy. Whatever the Budget may throw at them, on this evidence, consumers are still more than willing to spend.

Occupiers – maintaining course

Largely as you were in retail occupier markets – most retailers have reset and rebased and are set in an eternal (but positive) cycle of portfolio optimisation. Quietly disposing of under-performing sites, selectively acquiring new ones. And investing in existing stores that they are committed to for the long haul.

As ever, the media microscope disproportionately fell on retail occupier distress, with Bodycare (147 stores) and Claire’s (306 stores) the two major high street casualties in Q3.  Both entered administration, but have since been bought out and will live on, on a streamlined basis, under new ownership. Claire’s became the latest retail acquisition for private equity firm Modella Capital, which is understood to have paid just £3.6m for the business, with a going concern of 156 stores. All Bodycare’s stores were initially closed as part of the administration, before an investment group fronted by former Molton Brown and The Body Shop CEO Charles Denton acquired the brand and intellectual property. According to media reports, the plan is to re-open between 30 and 50 stores early in the New Year.

Meanwhile, Amazon’s decision to shutter its 20-strong Amazon Fresh chain again underlined its ongoing struggles to transition into a truly multi-channel retail operator, as covered in detail in my earlier Retail Note.

Beyond this turbulence, retail occupier markets are generally stable. In Q3, headline retail vacancy rates dipped below 15% for the first time since 2020. Vacancy rates improved across all retail channels – retail warehouses have the lowest rate (6.1%, according to LDC), while shopping centres showed the most positive quarterly trend (Q3: 16.5% vs Q2: 16.9%). 

Accordingly, all retail rents remain on a slow upward trajectory, increasing by +2.6% on an annualised basis for the 12 months to September, according to MSCI. Rents at retail warehouses (+3.1% on an annualised basis) continue to outperform standard high street shops (+1.7%) and shopping centres (+1.5%). A high degree of consistency here between vacancy rates and rental trends.

Investment - muted

In terms of property performance, retail continues to more than hold its own. In the latest MSCI monthly figures for September (the full Q3 figures aren’t released until next week), all retail reported a total return of +0.8%, underpinned by a healthy combination of capital growth (+0.2%) and income return (+0.6%). 

Total returns on an annual cumulative basis remain in double digits (+10.3%), way above Offices (+3.9%) and marginally higher than Industrial (+10.1%). Interestingly, within Retail, shopping centres are leading the charge (+13.2%), although the total returns of retail warehouses are hardly shabby (+10.4%).

As in previous quarters, strong property performance metrics did not fully translate into a buoyant investment market. In fact, strong ongoing performance actually proved something of a hindrance, with prospective sellers given limited impetus to do so. Investment markets generally also remain far more sensitive to both national and global political and economic sentiment, so arguably remain more exposed to pre-Budget nerves than other aspects of the retail economy.

Against this backdrop of uncertainty, retail investment markets remain fairly muted, rather than desperate. Total retail investment volumes totalled £1.17bn in Q3, a marginal (-4.1%) dip on Q2 (£1.22bn) and a -36% decline on the corresponding quarter in 2024 (£1.82bn). This took total YTD volumes in 2025 to £3.75bn, below the £4bn recorded at the same juncture last year.

A relative lack of large shopping centre deals (Q3 volumes of £365m across four transactions) was one of the key factors behind the overall shortfall of retail volumes in Q3. Without the 50% long leaseback buyout of the Bullring/Grand Central in Birmingham by Hammerson for £319m, these figures would be far lower still. However, there is a significant amount of stock waiting in the wings. With fair winds and following seas, a number of bellwether shopping centre transactions (e.g. Lexicon in Bracknell, Braehead and Silverburn in Glasgow, Merry Hill) should exchange or even complete in Q4, or early in 2026.

Hope springs eternal.

The Budget

Slightly improving consumer confidence and robust consumer demand trumping any perceived weakness in footfall trends. A generally healthy retail occupational market with the odd aberration. A top performing retail property sector, albeit a slightly ponderous investment market. The positive metrics of our Q3 Retail Monitor are being lost slightly amidst all the pessimism ahead of the Autumn Budget. 

We will speculate more on the outcome of the Budget in due course and dissect the implications not just for Retail, but for all real estate markets when the announcement is finally made on 26 November. Maybe things won’t prove as bad as all that. Even the very worst case scenarios (income tax and VAT rises) may not prompt the retail meltdown that many commentators will inevitably predict. Consumers are not robots and retail has a strange habit of proving its resilience when it is least expected.

But either way, plenty more “Wishin’ and Hopin’ and Thinkin’ and Prayin’” in the weeks to come…