A Retail Renaissance: The Comeback of Physical Stores
The tide is turning for UK retailers, and it's time to rethink our shopping habits.
After years of neglect and a challenging decade, physical stores are making a comeback, with retailers and investors pumping new life into the high street. According to research by Knight Frank, a leading property group, there's a shift towards reinvesting in bricks and mortar, particularly shopping centers and food stores.
But here's where it gets controversial... Online retail, which boomed during the pandemic, has now plateaued, accounting for just 26-28% of overall retail sales. This shift has retailers rethinking their strategies and pouring resources back into physical spaces.
And this is the part most people miss... Retail has outperformed other commercial properties this year, with an impressive 9.2% return on investments. Shopping centers and food stores are leading the charge, each delivering a 10.2% growth in returns. It's a far cry from the 'unloved' status retail once held.
Shopping centers are getting creative, offering 'experiences' like zip wires and darts to attract visitors. While large centers thrive, smaller malls face challenges due to retail chains' preference for fewer, larger stores. But the focus on experiences is a game-changer, bringing a new dimension to shopping.
Next year, retail property is set to deliver even stronger returns, with a forecast of 9.5%. Will Lund, head of retail capital markets at Knight Frank, believes this demand will drive investment volumes to decade-high levels in 2026. He adds, "We're expecting a busy year."
Mark Allan, CEO of Landsec, a commercial property company, agrees. He's prioritizing the acquisition of retail assets over the next 12-18 months, a sector once considered 'unloved'. Landsec, which owns shopping centers like Bluewater and Trinity Leeds, is shifting its focus from offices to retail and residential, a strategic move that's already showing results.
British Land, another major developer, is also diversifying, focusing on London office campuses and retail parks. Simon Carter, its CEO, highlights the acceleration of office attendance and the expansion of retailers outside city centers, creating a unique opportunity.
The market is buzzing with activity. Shopping centers are changing hands, and supermarkets are increasing sale-and-leaseback transactions. Knight Frank is managing the sale of Merry Hill, expecting a £300m bid from 10 investors. Frasers Group, owner of Sports Direct, recently acquired the Braehead shopping center near Glasgow for a reported £220m.
Investment in retail assets reached £5.8bn in 2025, a 17% decrease from the previous year due to a shortage of properties. However, transaction levels rose in the second half of the year, and with pricing on the rise, the momentum is expected to continue into 2026.
Charlie Barke, head of capital markets at Knight Frank, explains, "Stock supply is limited, and demand for investments exceeds supply in the retail sector. People are expecting these assets to perform well again."
Across the UK, the vacancy rate for shops has dropped to 13.5%, the lowest since 2020, with further improvements expected next year. The high street is rebounding, with £420m of shops traded in the second half of 2025, a 150% increase from the first half. Prime centers and regional cities are expected to see rental growth of 6.9% this year.
Sam Waterworth, a partner at Knight Frank, sums it up, "Retail has turned a corner, and 2025 marks the high street's comeback."
So, is this the end of online dominance? Or will physical stores always play a crucial role in our shopping experience? What do you think? We'd love to hear your thoughts in the comments!
