The Retail Note - Retail Investment: the best offence is defence

Key Messages

• Total retail investment volumes in H1 2026 stood at £2.09 billion
• Volumes down -17% on corresponding period last year
• Investment markets remain highly sensitive to geopolitical events
• Shopping centres only sub-sector to be up YoY
• Shopping Centre volumes up +95% YoY to £870m…
• …accounting for 42% of Retail volumes in H1
• Figures boosted by ‘big ticket’ deals e.g. Merry Hill…
• …with more to come in H2 e.g. Metrocentre
• RWH volumes down -43% to £840m
• Reflection of a lack of stock, rather than absence of demand
• A similar story in foodstores
• Foodstore volumes down -47% to £160m
• High Street volumes of £215m (-22%) belie stronger depth of demand
• More than half a dozen UK institutions actively targeting High St investments
• Consumer and occupational markets more resilient to geopolitical events
• Retail on track to again be the best performing real estate asset class
• Projected total return for All Retail in 2026 of 7.4%...
• Shopping centres (8.5%) slightly ahead of RWH (8.2%)

“The best offence is defence”. Unless you’ve just taken a 1-0 lead in the second half of a World Cup semi-final against the reigning champions. Encouraging that Mr Tuchel and the England Team appear to have read our latest Retail Investment Update, disappointing that they applied the strapline too literally.

A subdued H1

Unlike England, retail investment had a fairly lacklustre first half. Total retail investment volumes in the first half of 2026 stood at £2.09, down -17% on the same period in 2025. While they didn’t necessarily impact consumer markets as widely expected, conflicts and global economic crises did destabilise investment markets, triggering many owners and would-be investors to pause investment decisions.

But there were some bright spots. Shopping Centres bucked the trend, outperforming the same period last year by +95%. With more stock anticipated during the second half of the year, Shopping Centres are likely to have a strong second half (unlike England), again outperforming all traditional investment sectors on a Total Returns basis.

Occupationally, however, the Retail market has shown its resilience once again, with core fundamentals remaining highly supportive of further investment activity once markets normalise in the second half.

The best laid plans…

We were cautiously optimistic coming into 2026. Retail was sitting pretty at the top of real estate performance charts and the start of 2026 saw the strongest demand across the retail sub-sectors that we have witnessed for a decade.

Processes run through Q4 of the preceding year had outperformed expectations - in terms of investor interest, number of proposals received and ultimately pricing – providing renewed confidence to the market and signaling the start of a resurgence of the Retail market at large. Our forecast of a return to 10 year average deal volumes in 2026 was a confident one.

Cue the latest incarnation of Murphy’s Law, with the outbreak of war in the Middle East and the subsequent closure of the Strait of Hormuz – the latest in a series of major geopolitical shocks to play havoc with investment markets across the globe. Given the suite of global economic crises that has played out since the Brexit Referendum of 2016, an extended period of stability was always going to be a flight of fancy.

With supply chains thrown into disarray, serious concerns about the impact of rising inflation and a corresponding movement in five year SONIA swap rates (from 3.5% at the start of March to 4.4% in May), most real estate sectors saw deal supply pipelines unsurprisingly deferred to later in the year, as buyers and sellers sought greater clarity in market trajectory.

While investor sentiment may have temporarily cooled, Retail real estate continues to perform well. Annualised Total Returns for Retail stood at 7.9% for H1 2026 (vs All Property at 5.4%, Industrial at 5.5% and Offices at 2.9%) and our projections are that performance will only moderate slightly in the second half of the year. Total Returns are projected to be 7.4% for the year as a whole, again the strongest performance in the market.

Occupational resilience

The (non) impact of events in the Middle East on consumer and retail occupier markets has already been explored in a number of previous Retail Notes. In essence, fears that challenges emanating from the Middle East would exacerbate “cost of living” concerns and further dampen already weak GDP growth have, to date, proved overblown.

Knight Frank analysis suggests that retail sales usually perform robustly during periods of economic distress and high inflation, suggesting that rising inflation shouldn’t necessarily destabilise underlying consumer demand this time around. During the GFC (2008-11) CPI inflation averaged +3.4% vs retail sales value growth of +2.8%; similarly through COVID and into the early stages of the Ukraine war (2020-2023) CPI inflation averaged +8.2% vs retail sales value growth of +4.7%.

This year, with inflation at 2.8% in the year to May, anaemic GDP growth averaging +0.4% and despite conflicts in both the Middle East and Ukraine unresolved, retail sales volumes have seen growth of +2.9% and sales values of +4.9% in the period January-May. This was on top of a strong year for Retail in 2025, which saw retail sales values and volumes both grow, by +3.3% and +1.7% respectively. A full half-year review in next week’s Retail Note, which will report on the June/Q2/H1 retail sales figures from the ONS.

As we explore in our Retail Renaissance 2026 Paper #2: Store Wars: a New Hope, retail occupational markets are generally in good health. Most retailers now reporting positive intentions to grow, reshape or invest in their store portfolios. Vacancy rates are reducing across all of the Retail sub-sectors, new floors[ace development remains very low (and will remain so for some time in the Shopping Centre and High Street markets) and online penetration continues to plateau at around 28% of all retail sales (for more detail, please refer to our Retail Renaissance 2026 Paper #2: Death of Online?).

With a new Government soon to be formed under Prime Minister-in-waiting Andy Burnham, lobbyists will be rallying against a number of legacy issues affecting the Retail sector at large: an outdated business rates system (to be explored in our Retail Renaissance 2026 Paper #6: Business Rates: Making the Inequitable Palatable), VAT regulations favouring online marketplaces with the exemption on low value imports, the exodus of wealthy residents in the face of wealth taxes and inflexible employment regulations and living wage increases heightening the cost of doing business in the UK. An unenviable in-tray.

Retail Warehousing – uncharacteristically quiet

A much quieter start to the year than RWH has become accustomed to, with H1 volumes of just £840m, the market characterised by fewer, larger trades. With no absence of demand, a handful of committed buyers still managed to identify opportunities to deploy capital, whilst others sat on the sidelines awaiting greater clarity.

As we explore in our Retail Renaissance 2026 Paper #3: RWH: Sleepwalking towards a Supply Crisis?, retail warehousing vacancy rates are at a record low of 4.8% (but with many markets exhibiting next to no vacancy), it is easy to see why the sector remains one of the most sought-after in the market. Occupier demand has continued to strengthen as retailers note the relative performance of OOT vs in-town stores. This is compounded by the absence of a development pipeline meaning existing stores have become increasingly valuable and new opportunities are being fiercely contested.

Rental growth (+3% in the 12 months to May) continues to be a key driver for income-focussed investors (albeit moderating in part due to massive outperformance in the past three years) and a key contributor to total returns at 8.1% (Jan-May annualised).

The RWH investment market is now dominated by a handful of committed buyers. Hines (acquiring Junction One, Wallasey at £48.25m, and Altrincham and Straiton for a combined £88m), DTZ Investors (Slough Retail Park at £55.1m), ICG (under offer to acquire Beckton Gateway at ca. £65m) and Realty (most recently adding portfolios from Tristan Capital and South Street Capital for a combined £320m to an already enormous European platform).

The deferral of investment supply into the second half, largely driven by the lack of delta between tightening yields and rising Gilt rates resulting from the war in Iran, will undoubtedly see further purchases from this group along with others targeting the sector, with the likes of Ashtrom, Schroders, Royal London and a number of French SCPI funds keen to add to existing portfolios.

Foodstores – deathly quiet?

An absence of supply, rather than lack of demand. Deal volumes were just £160m H1 2026, roughly 50% lower than the same period in 2025. Exacerbated by a dearth of willing sellers, a lack of arbitrage between prime yields and Gilt rates and covenant challenges with the private equity-owned Morrisons and Asda businesses, this is likely to be the lowest volume year for foodstores since COVID.

Tesco continues to acquire leased stores via pre-emption agreements and negotiated deals, seeking to reduce balance sheet liabilities and invest a substantial cash pile generated by the profitability of its core business. The retailer acquired its store on Finchampstead Road in Wokingham for £41.6m in such a transaction. Similarly, Waitrose has reported plans to buy-in strong performing stores e.g. their Hersham site for £22m.   

We understand further sale & leaseback activity is being considered by Asda to release capital from its owned real estate, which would support an improvement in volumes in the second half. Lidl – reportedly selling a £113m sale & leaseback portfolio of 14 UK stores to Border to Coast (managed by Aberdeen) – has been busy with a similar strategy across Europe, having concluded a €203m portfolio of 24 stores (17 in the UK) to ICG last year.

High Street – renewed signs of life

As will be explored in our Retail Renaissance 2026 Paper #5: Never Say Never Again, demand continues to grow from established, institutional investors, with half a dozen such requirements actively pursuing well-let shopping parades. In the meantime, French SCPI, private and property company investors continue to dominate regional markets.

Knight Frank intelligence suggests more than half a dozen UK institutions are openly targeting High Street investments – the most in recent memory with a list including a good number of investors who sold the sector so extensively in distressed periods either side of COVID. Typically, these requirements will start with a narrow focus, most likely targeting well-secured parades let to investment grade covenants on prime pitches in Outer London or the South East.

Deal volumes are yet to reflect this uptick in activity, standing at £215m in H1 2026, -22% lower than the £280m traded in the same period last year and substantially lower than the two quarters contributing to record volumes of ca. £2bn in 2016. The High Street has become a granular market but remains highly popular amongst investors seeking lower intensity management.

With prime yields at 6.25% (some +225 bps higher than their peak in 2016) and with many high quality opportunities buyable at much higher cap rates, some savvy investors have acknowledged a renewed opportunity to aggregate high income-producing estates from disenchanted owners. Ongoing sales of the Greenwich Estate (being marketed by Knight Frank at £80.2m). John Lewis, Cheltenham (another Knight Frank sale at £22m) and Zara and Foot Asylum on Buchanan and Argyle Streets, Glasgow (£17m) are evidence of growing confidence in investment demand for larger lot sizes, which should generate an increase in deal volumes in the second half of the year.

Shopping Centres – back of the net

Saving the best til last – and rare alignment between strong property performance and investment flows. Shopping Centres were the only sub-sector to record an uplift in deal volumes during H1 2026 against the corresponding period in 2026, with volumes rising +95% from £450m to £870m. Even this near doubling of volumes belies the scale of activity in the market, with more than £1bn of sales currently either under offer or on the market. Deal volumes should, barring any further unexpected global economic crises, return to long term annual averages at £2bn+.

As will be explored in our Retail Renaissance 2026 Paper #4: intu: where have they gone to?, a remarkable recovery has been staged by many large regional malls which has contributed to far greater acceptance of their role in the UK Retail landscape. These assets have been proven to provide critical mass for shoppers and occupiers and, where these have been invested in (and reinvented in some instances), provide a unique shopping proposition given there is unlikely to be any future development of large retail assets for some time.

Major UK REITs LandSec and Hammerson have publicly stated their desires to acquire further large shopping centres where they align with their portfolios. Frasers, owners of Sports Direct and a host of high street brands, have continued their prolific acquisition spree adding designer outlets at York and East Midlands totalling £400m. Redical concluded the acquisition of Merry Hill shopping centre at £290m, adding to their portfolio of prime assets.

Knight Frank’s ongoing sale of Metrocentre at £500m will be a bellweather for the sector with further investment pipeline largely fuelled by assets formerly within the intu portfolio as well as a handful of profit takers also sense a moment to capitalise on this renewed demand to exit asset acquired opportunistically immediately following COVID.

Debt markets are highly supportive of the Shopping Centre sector – undoubtedly a key contributing factor to the currently strength of demand. Outward movement in SONIA five year swap rates (currently standing at less than 4% for the first time since February) was counterbalanced by a reduction in margins (with the best centres now achieving less than 2%) meaning “risk-on” owners are readily able to achieve mid-teen levered returns from relatively benign business plans.

Outlook

Retail is likely to again be the best performing real estate sector through 2026, with Shopping Centres leading the charge. Knight Frank projections suggest Retail will deliver returns of 7.4% for 2026, with Shopping Centres at 8.5%, marginally ahead of Retail Warehousing at 8.2%.

This outperformance could drive demand from more strategic investors from across the globe. The UK remains the most popular destination for cross-border investment (as unveiled in Knight Frank’s Active Capital survey) but so far most has been channelled into London offices or the industrial and residential sectors. A body of evidence is building in support of the Retail sector which gives us confidence in a return of capital from sovereign wealth investors, European funds, UK pension funds as well as Far Eastern capital to UK Retail markets.

With stock supplies chronically low across most UK investment markets, greater stability in the second half of the year will drive a rapid recovery of deal volumes. A number of forthcoming Shopping Centre, Retail Warehousing and High Street sales will gather demand from active players in each market. Unfortunately, we do not expect a drastic shift in the supply of openly-marketed Foodstores, suggesting that the many active requirements in this space will remain unsatisfied.

Prime yields are likely to remain stable through the year, although this only tells part of the story given economic conditions in the early part of the year could have seen rapid outward shifts in most prime Retail yield groups. A general economic recovery should support a normalisation of inflation and a return to a policy of monetary easing.

The eagle-eyed will have spotted a number of references to our accompanying six-part Retail Renaissance 2026: Still Tough at the Top series. These six papers analyse key themes that are defining the Retail landscape and explore why, despite being real estate’s strongest performing sector, success has to be fought for and there is no place for complacency.

And the England team, as you are no doubt reading this, no place for complacency means not sitting back on 1-0 lead in a World Cup semi final….  

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