With retailers back in expansion mode, demand has been particularly strong for prime assets in key locations, and format distinctions are becoming less relevant. This imbalance has driven vacancy rates lower and exerted upward pressure on prime rental values. Concurrently, the market is becoming increasingly polarised: prime assets benefit from resilient footfall and sustained tenant interest, while secondary properties struggle with weaker demand, higher vacancy and limited rental growth potential.

Pipeline paralysis gives way to optimisation

Retail development across Europe has entered a phase of pronounced slowdown, edging closer to paralysis in some markets. Since 2019, new construction activity has dwindled under the weight of tightening planning frameworks, environmental constraints, and rising construction costs. The pace of expansion has been negligible: shopping centre stock has grown by only 0.4% per year, while outlet centres and retail parks have managed slightly faster but still muted growth of 1.2% and 2%, respectively.

With greenfield opportunities becoming increasingly scarce, developers are shifting their focus away from large-scale new schemes and towards asset optimisation. Rather than building from scratch, they are prioritising extensions, targeted refurbishments, sustainability upgrades, and refreshed tenant line-ups to protect asset value and extend lifecycles. This evolution highlights a market where capital expenditure is focused on resilience and incremental improvement, rather than speculative expansion.

Given the current pipeline, retail development activity is set to slow even further over the next five years, with future supply now converging across all retail formats. When combining schemes under construction with those in planning, shopping centres and retail parks each account for almost identical volumes, 3.3 million sq m and 3.5 million sq m, respectively. This convergence shows that the trend is not format-specific but a sector-wide reality. Planning approvals are increasingly selective, granted only to projects with strong catchment fundamentals, flexible tenant mixes, and long-term consumer relevance.

Tight supply supports occupier resilience

Strengthening consumer spending and renewed retailer appetite for prime space, coupled with very limited new development and the steady upgrading of secondary assets, continue to push vacancy rates down across Europe. In the best pitches, empty units are now almost non-existent, and rental levels are starting to rise as competition for the best space intensifies.

Vacancy tightening in prime locations

Across Europe, retail vacancy has continued to narrow over the past year, though performance remains sharply divided between prime and secondary assets. The most resilient formats, retail parks and retail warehouses, have emerged as the clear outperformers. Their vacancy rates have fallen further thanks to a healthy mix of grocery anchors, value and discount operators, home improvement chains and bulky goods retailers. These segments continue to benefit from easy car access and the integration of stores into omnichannel fulfilment networks. In the UK, vacancy in prime retail parks now sits below 5%, underscoring their strength.

Outlet centres also remain structurally tight. Consistent brand rotation, the rebound in international tourism, and the proactive asset management of operators keep units occupied. Vacancies here are generally short-lived and serve as opportunities to fine-tune the retail mix rather than signs of weakening demand.

Prime high streets in major gateways, helped by tourism’s recovery, stronger luxury and aspirational branding, and the return of experiential flagships, have seen a steady fall in empty units. On the high street, luxury market vacancy has returned to pre-pandemic levels, falling from 5.8% in 2024 to 5.5% this year. However, secondary pitches continue to face elevated churn, with weaker demand and higher turnover.

Neighbourhood and convenience parades are near full occupancy, supported by daily-needs retail and personal services. Changes in these segments tend to reflect local demographic shifts rather than structural weakness.

Shopping centres show the widest divergence. Leading, well-positioned schemes with good transport access and a modernised offer, particularly those that have added food, leisure, and health components, are recording vacancy compression. According to PMA LLP, prime shopping centre vacancy has declined for the first time in a decade, averaging 9.5% in 2025 - down 20 bps from last year. By contrast, secondary centres continue to wrestle with anchor rationalisations and outdated configurations. In these locations, voids are often managed through partial repurposing into non-retail uses such as gyms, clinics, municipal facilities, or last-mile logistics.

Rental uplift across best-in-class assets

As vacancy tightens and new supply remains constrained, prime rents across Europe are experiencing sustained upward pressure, rising by an average of 8% across all formats since 2022. On the high street, luxury pitches have led the way with a 14% uplift, while rents in the mass-market segment have increased by 9%. Though more modest, shopping centres and retail parks have each recorded a 4% rise in average rents over the same period. When looking at just the last twelve months, high streets have seen a 2.5% uptick, shopping centres 1.8%, and retail parks 0.5%.

Looking ahead, improving consumer spending, along with constrained development activity and ongoing repositioning, will continue to limit effective supply, while the steady optimisation of existing assets is progressively enhancing overall stock quality. As a result, vacancy rates across most prime formats are expected to decline further.

This will, in turn, sustain upward pressure on prime rents across all retail formats. However, rental growth is likely to moderate through 2026 as occupiers adopt a more cautious stance amid global economic headwinds and rising operational and fit-out costs. The most expensive retail destinations, notably in the UK, are expected to feel this pressure more acutely. By 2027, however, stronger economic fundamentals could reignite rental momentum.

Meanwhile, greater emphasis is being placed on extracting more value from existing properties. In secondary locations, this often translates into repositioning or conversion towards service-led and mixed-use functions. Together, these shifts highlight a retail landscape in transition, one defined by adaptation, reinvention, and a gradual uplift in asset quality.

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