SHW out of town retail focus
Closures of household name retailers presents strategic opportunities for occupiers to expand and landlords to improve their property assets
By Jeremy Good, director, SHW comments: “Following the government’s budget announcements in late-2024 and concerns over the impact of the new administration in the United States, retailers entered 2025 cautiously.
The impact of the tariffs imposed on trade by the US administration and the increases in April to the National Minimum Wage and National Insurance contributions led to a number of retailers carefully considering their strategy in the early part of 2025.
Despite the cautious attitude to the trading conditions, many retailers have continued with their expansion plans in the early part of the year. The recent closure of Homebase and Carpetright in 2024 and more recently Poundland have presented a range of strategic opportunities for occupiers to expand and for landlords to improve their property assets. Although concerned about the potential impact of these recently imposed inflationary pressures in 2025, Currys have reported a 37% increase in their full year profits due to strong UK sales and services. Likewise, M&S have announced a commitment to a £300 million programme to refurbish and upgrade their store portfolio. These examples provide a clear indication that retailers are looking to resist the economic headwinds and are adapting their strategies to reflect the developing macroeconomic trends.
Although vacancy rates across the retail warehouse market edged up slightly in early 2025 to around 5% due to the collapse of a number of retailers, a significant proportion of the vacant stock has been available for over three years and is now considered to be obsolete – this will be repurposed over time. The true vacancy rate in the sector is likely to be around 2.5% once this space has been discounted.
Despite the slight increase in the overall vacancy rate, this remains lower than the shopping centre/high street retail sectors. As a result of this tight supply, especially in good retail locations and continued retailer demand, retail warehousing continues to attract strong investor interest as it offers longer leases, more resilient tenants’ and scarcity of product despite the challenging economic backdrop.
The failure of the national multiples mentioned has afforded landlords the opportunity to diversify the tenant mix in their retail parks to cater to shifting consumer demands. There is noticeably less emphasis on traditional bulky goods retail and a continued shift to more discount focussed retailers and grocers. Value-led retailers now occupy over 20% of retail warehouse floor space, a significant increase from the 8% seen a decade ago.
Although consumers have adopted a more positive outlook on their personal finances for the year ahead due to continued wage growth and lower inflation rates, retailers’ rising operational costs are expected to be passed on to the consumer which will reduce this optimism. Discount retailers remain best placed to profit from this current economic scenario and will continue to be a substantial element of the out-of-town retail sector.
The F&B market has remained strong in 2025, with many operators continuing aggressive expansion strategies despite the possible impact of increasing staffing costs. In the early part of the year, the coffee operators led by Costa and Starbucks were the most acquisitive operators across the retail park sector. Others including Black Sheep, together with sandwich/bakery operators such as Greggs and Subway, continue to drive the sector. In the restaurant arena, Burger King and Popeyes continue to be active whilst McDonalds are actively seeking opportunities in those key areas where they are under-represented. Recent entrants such as Wendy’s and Taco Bell have continued to help drive demand and rents, although the increased costs of building new units has begun to affect viability of new build developments.
Demand for both drive-to and drive-thru units was high in 2024, driving rental growth across the UK, and this upward trend has carried into 2025, with new lettings often achieving new peak rents in their respective markets. The competition for opportunities is likely to be exacerbated by changes in planning policy which are expected to limit development opportunities for hot food takeaways (e.g. Greggs and Popeyes), due to amendments to the National Planning Policy Framework (NPPF) restricting new schemes near schools. However, operators like Starbucks and Costa are less likely to be classified as “hot food outlets” by local planning authorities which may give a strategic advantage in this restricted market.
Investment
Investment volumes in Q1 2025 exceeded £880 million – an increase on the five-year quarterly average of around £750 million – although this is notably lower than the £1.8 billion recorded in the last quarter of 2024. Several major deals have completed in 2025 so far, including ICG Real Estate’s acquisition of three retail parks from M7 for £136.5 million in June and Realty Income’s £157 million purchase of County Oak Retail Park (Crawley) and Solihull Retail Park (Solihull) from Tritax Group/Delancey in May.
2025 began with cautious optimism and the majority of retailers have since demonstrated their ability to adapt to changing economic conditions. The continuation of expansion plans and the above average investment volumes signify a general belief in the out-of-town retail market’s strength. This has been particularly aided by improving consumer sentiment and persisting longer-term dis-inflationary trends reflected by the Bank of England holding interest rates steady at 4.25% in June.
From the current position, it appears that out-of-town retail sector will continue to appeal to both investors and occupiers alike throughout 2025 with continuing signs of rental growth in high profile locations with restricted supply.