Chapter 6
Retail
European Real Estate Market Outlook Mid-Year Review 2025
January 2025 Forecast
Consumer fundamentals to improve further
Consumer fundamentals are expected to continue to improve in 2025. A steadier increase in disposable income is forecast, while further rate cuts are likely to aid in boosting confidence and stimulating demand.
Mid-year review
- On an inflation-adjusted basis, wages rose strongly early in the year in both the Eurozone and UK. In the UK, this growth persisted despite a spike in April inflation, driven by regulated increases in household bills including energy and water.
- Retail sales volumes grew robustly in the early part of the year, even as consumer confidence declined in both markets, highlighting a continued disconnect between sentiment and spending. Sales fell in both the UK and Eurozone in May, though look to have improved in June. While France, Spain, and Central and Eastern European economies have seen positive momentum, some weakness persists in Germany, Europe’s largest economy.
- While further improvement in both retail sales and wage growth is forecast in the remainder of the year, uncertainties around trade policy and inflation present key downside risks and could lead to consumers increasingly focusing on non-discretionary spending.
January 2025 Forecast
Leasing activity to strengthen
Leasing activity will accelerate, as retail occupiers realise expansion plans. Steady rental growth is expected across high streets and shopping centres. Availability will remain a challenge in prime locations, however certain occupier types with very large units will look to reduce their unit sizes.
Mid-year review
- Global trade and policy uncertainties have had little impact on existing European retailers expanding their portfolios, though new market entrants remain more cautious. Prime high street leasing remains strong, with vacancy rates typically below 5% and rents often achieving above quoted levels. Brands are also committing to longer lease terms. Prime shopping centres show similarly high occupancy, though rental growth is more modest and largely index-linked.
- Secondary space lags, but discounters are expanding across Europe and are taking space in secondary locations traditionally considered harder to let, helping to drive footfall.
- We expect continued healthy leasing demand in the remainder of the year, barring any shocks relating to trade policy or the wider macroeconomic environment. However, we also expect the gulf between prime and secondary space to stay wide.
January 2025 Forecast
Retail parks and prime assets to outperform
Retail parks are likely to see stronger rental growth than other asset types, due to having the strongest occupier demand combined with the lowest vacancy rates. High street locations and shopping centres in the prime segment are also expected to see robust rental growth, however.
Mid-year review
- Retail parks saw year-on-year rental growth of 4% in Q2 according to CBRE’s European Shopping Centres Performance Index, the strongest of all asset types tracked by the index. Our prime European indices show growth of 3.4% for high streets and 2.8% for shopping centres in the same period. Rental growth has been stronger overall in the high street segment following the post-COVID rebasing in rents.
- Growth is expected to be more moderate in the remainder of the year. We forecast European weighted average prime shopping centre and high street rents to grow by 1.6% this year. Retail parks are expected to continue to outperform due to strong fundamentals.