The UK retail market, whilst battered by the pandemic, is starting to show signs of life in early 2025. Footfall, despite remaining below pre-pandemic levels, has seen a modest recovery, with retail parks leading the way. Retail sales volumes have fluctuated, with a 1.7% rise in January 2025 following a decline in December 2024. The overall trend remains below pre-pandemic levels but has trended upwards since hitting a low point in late 2023. Despite these challenges, consumer confidence is showing signs of improvement, rising to -19 in March 2025.

Vacancy rates on the high street (17.2%) and in shopping centres (13.8%) edged down in Q4 2024, while the vacancy rate in the retail warehouse (4.6%) has remained stable since the end of 2023. Coupled with stabilising footfall and a growing volume of operators seeking space across the sub-markets, the overall retail sector appears to be in a significantly better position than in recent years. External pressures on the sector, such as the rise of employer NIC and the packaging levy, are inevitably pushing occupiers to find new solutions to cut down on operating costs. The likely result will be faster adoption of automation, self-checkout facilities and AI to reduce labour costs. Similarly, advances in supply chain management through AI have the potential to revolutionise stock management. Crucially, these technologies will require refits to facilitate their implementation.

Retail has increasingly evolved over the last decade, with new occupier types and a mixture of uses. In many cases, rebuilding has often been seen as more viable because redeveloped schemes are able to seek value from expansion and densification. Retrofitting, on the other hand, can require significant compromises due to the existing building configuration and structure.

This is highly dependent on the asset class. Compare the relative flexibility of a retail park or larger shopping centre unit to that of a small high street unit, and difficulty in adjusting to new tenant types and environmental regulations are worlds apart. The challenging environment has incentivised landlords to optimise existing asset use, carving up larger units, or in the case of larger retailers, encouraging concessions, click-and-collect facilities or experiential retail.

Since 2022, construction costs, including materials and labour, have become more stable, with less volatility throughout 2023 and 2024. However, inflation is expected to rise this year, with the Tender Price Index (TPI) anticipated to increase from an average of 2.8% in 2024 to around 3.5% in 2025, driven by contractor insolvency and increased demand.

Labour costs continue to exert pressure. Material costs have stabilised due to improved availability since 2022 but remain about 39% higher than pre-Covid levels. Additionally, fit-out costs for large flagship stores have increased as they focus on creating unique, tech-driven experiences beyond generic branded designs.

_{Read the articles within Savills Build: Perspective report below}