Retail

January 2026 Forecast

Subdued retail sales growth

The retail sector showed signs of resilience and recovery in 2025. While consumer confidence remains volatile due to cost-of-living concerns, more optimistic sentiment has translated into year-on-year retail sales growth since June, and we forecast this metric to increase by 1.9% in 2026.

Midyear review

• Last year’s improving sentiment did not continue into H1 2026. GfK’s Consumer Confidence Index shows a decline over H1 with the greatest drop in the Major Purchase Index, reflecting caution over spending on “big-ticket” items. Inflation and cost of living concerns continue to put pressure on discretionary spending.
• Despite weakening sentiment and geopolitical headwinds, retail sales volumes have shown resilience and performed ahead of expectations in the first half of the year. Q2 volumes rose 4% year-on-year, and sales in June were boosted by major summer sports events, good weather, and retailer promotions. Health and beauty continues to outpace wider retail sales.
• While inflation remains above the Bank of England’s 2% target, the recent rate has been lower than expected, with increases to transport costs offset by lower food prices.

January 2026 Forecast

Shortage of prime supply

The occupational market is expected to continue to perform well. Vacancy rates declined in 2025, with retail parks and major Central London streets performing particularly well. We expect supply to remain constrained in these sought-after locations throughout 2026, while the top shopping centres approach full occupancy. As a result, rents in prime locations are expected to increase further.

Midyear review

• The retail park vacancy rate continued to decline in H1 2026. New developments remain at an all-time low, and there is sustained demand from a range of occupiers. In line with expectations, the tight supply-demand dynamics have continued to drive prime rents, which are now above pre-pandemic levels – the only retail subsector to achieve this.
• In Central London, there remains a shortage of available space on the prime streets with record-low vacancy. For example, Oxford Street has continuously seen vacancy decline from 4.3% at the end of 2024 to just 0.4% as of June this year. This is the lowest level recorded in the last 20 years. According to CBRE’s Prime Rent Index, average prime Central London rents increased by 7.6% year-on-year in Q2 2026.
• Shopping centre performance continues to be polarised, with the top shopping centres achieving occupational highs and uplifts in sales. This subsector saw the greatest year-on-year average prime rental growth in Q2.

January 2026 Forecast

Experience-led investment

Many retailers will continue to invest in their stores through experiential retail, as consumer preference for spending on experiences over material goods grows. Strategies include upgrading customer service, changing store formats, and hosting events to create community and drive loyalty. Owners and investors of multi-unit assets will continue to broaden tenant mix, incorporating food and beverage, leisure, healthcare, and wellness.

Midyear review

• Our Retail Generational Survey supports this trend, identifying customer service, store aesthetic, and in-store events as key demand drivers. Some recent examples of this include John Lewis’ investment across multiple stores to enhance customer service and appointment-led shopping, and Hermès Maison on New Bond Street, which blends retail with a residential feel, immersive art, and craftsmanship.
• Beyond tenant mix, consumers highlighted other experiences, such as dining out, as an important factor when choosing a retail destination. This is reflected in dining out being the most popular non-retail leisure activity, followed by cinema visits and sports & fitness.
• With this in mind, our expectations remain unchanged. Landlords will continue investing in their offering beyond core retail, and retailers to prioritise the in-store experience, capturing experiential demand and driving footfall.

H2 2026 Outlook

Stability expected in the retail market for the rest of the year

While we expect inflation to peak at c.3.5% year-on-year in Q4, while immediate inflation risks remain present, we still expect stable monetary policy for H2. We therefore anticipate retail sales will grow at a similar pace to last year, reaching a subdued 1.78% year-on-year growth.

Though the rate of rental growth in prime shopping centres has slowed since 2025, the trend is still positive and should continue for the remainder of the year. When new transactions occur, rental growth is evident, however due to a lack of availability in many prime centres, transactional evidence is thin. Landlords are undertaking asset management strategies to replace underperforming tenants.

Figure 9: UK retail sales volume YoY, monthly change and annual CPI inflation rate

Prime Central London's tight supply-demand dynamics continue to drive significant outperformance relative to wider UK high streets. Competitive tension will sustain upward pressure on rents, albeit at a more moderate pace.

Retail parks are set to keep outperforming as the strongest retail subsector, underpinned by solid occupational fundamentals. Well-located, larger-format schemes are able to push rents higher where supply remains tight. Retail parks are expected to continue dominating retail investment volumes with a growing pool of capital.

Figure 10: UK prime average rents index by asset type