UK retailers are once again putting serious money into bricks-and-mortar stores, signalling a decisive shift in sentiment after more than a decade in which physical retail was widely written off.
New data from Knight Frank shows that retailers and property investors are reallocating capital back into physical retail assets, with shopping centres and food stores emerging as the strongest performers across the commercial property market.
The move marks a significant turnaround for the high street and shopping centres, which endured years of structural decline before being dealt a further blow during pandemic lockdowns, when stores were forced to close and online shopping surged.
That surge has now plateaued. Online penetration has flatlined at between 26% and 28% of total retail sales since mid-2021, well below the 35% peak reached during the height of Covid restrictions. As digital growth stabilises, retailers are re-embracing the value of physical locations for brand presence, customer engagement and experiential retail.
Retail property has outperformed all other commercial sectors this year, delivering total investment returns of 9.2% in the year to September. That compares with 9.1% for industrial property and just 3.2% for offices. Within retail, shopping centres and food stores are joint top performers, each delivering returns of 10.2%.
The revival is being driven by a combination of improved consumer footfall, limited new supply and a strategic rethink by retailers. Many shopping centres are repositioning themselves as mixed-use destinations, blending retail with leisure and entertainment such as indoor darts venues, climbing walls and zipwire attractions to increase dwell time and footfall.
Larger, modern centres have benefited most from this trend, while smaller and older malls continue to struggle as retailers favour fewer, higher-quality flagship locations.
Looking ahead, retail property is forecast to deliver investment returns of around 9.5% next year, with Knight Frank predicting a further acceleration in activity as confidence builds.
Will Lund, head of retail capital markets at Knight Frank, said the narrative around retail had shifted decisively. “With online penetration flatlining and retailers reinvesting in physical space, we have great confidence that this demand will drive a return to decade-high investment volumes in 2026,” he said.
Major property owners are already responding. Landsec, one of the UK’s largest commercial landlords, has publicly prioritised retail acquisitions over offices, selling hundreds of millions of pounds worth of office assets as it pivots back towards shopping centres and mixed-use retail destinations. British Land has also highlighted renewed momentum across retail parks and out-of-town schemes as office attendance improves and retailers expand selectively.
Transaction activity supports the trend. Knight Frank estimates that £5.8bn was invested in retail assets during 2025, with volumes constrained not by lack of demand but by a shortage of stock. Fewer owners are willing to sell, anticipating stronger performance and rental growth ahead.
High street investment surged in the second half of the year, with £420m of shops changing hands, up 150% on the first six months of 2025. Vacancy rates have fallen to 13.5%, the lowest level since 2020, with further reductions expected in 2026 as demand continues to outstrip supply.
Charlie Barke, head of capital markets at Knight Frank, said: “For the first time in quite a long time, demand for retail investments exceeds supply. Owners are holding on because they expect these assets to perform.”
For a sector long dismissed as “unloved”, 2025 appears to mark a clear turning point, with retailers betting that the future of shopping will be as much about experience and place as it is about clicks and convenience.
