KEY TAKEAWAYS

Occupational

• Occupational market – supply, not demand, is the constraint: Letting volumes remain below trend, but this reflects acute supply shortages rather than weaker occupier appetite, with vacancy at a cyclical low and demand often reliant on sporadic distress-led releases.
  
  
• Occupier retention – limited churn: High lease renewal rates and minimal development have created a “sticky” market, with retailers retaining space to support omnichannel strategies and limiting the recycling of units back into the market.
  
  
• Structural shift – more resilient occupier mix: The sector has rebalanced away from bulky goods towards grocery, discount and value-led operators, materially improving resilience to weaker consumer conditions.
  
  
• Demand breadth and take-up trends: Acquisition activity is being driven by discounters, grocery and expanding national and high street brands, alongside a widening pipeline of international entrants, value retailers, F&B and leisure operators - highlighting both the depth and increasing diversity of demand for retail parks.
  
  
• Supply reality – effective vacancy even tighter than headline suggests: Once long-term vacant and obsolete stock is excluded, availability falls to around 1.8%, equating to less than one year of supply and intensifying competition for space.
  
  
• Rental growth – moderating but increasingly selective: Rental growth has paused at a headline level but remains supported by scarcity, with the strongest performance in larger units and undersupplied markets, alongside longer lease commitments.

Turning to the occupational market, last year’s weaker total letting volumes should not be interpreted as weaker demand. New lettings totalled 721 in 2025, below the long-run average of 847, and with only 120 lettings completed in Q1 2026, volumes are again likely to remain subdued this year. However, this is primarily a reflection of constrained supply rather than any lack of occupier appetite. Vacancy has fallen to 4.3%, its lowest level since 2017, and the market remains characterised by a structural shortage of available space.

That position was clearly illustrated in 2024. The administrations of Homebase and Carpetright pushed a modest amount of space back into the market and briefly lifted vacancy, but those units were quickly absorbed by a market already short of supply. The resulting increase in activity was therefore less a sign of weakening fundamentals than evidence of pent-up demand. Much the same can be said of the smaller number of units released more recently through restructuring activity. In effect, the market has become increasingly reliant on isolated distress events to generate leasing opportunity. In the absence of a major insolvency that returns a meaningful tranche of stores to the market, letting volumes are likely to remain constrained.

Occupier retention and the scarcity of churn

A key reason for this is the increasing “stickiness” of occupiers. In a sector where there has been almost no meaningful new retail park development beyond selected roadside food and beverage schemes, drive-thru formats, and bespoke discount grocery stores, space is finite. Retailers recognise this and are consequently far less willing to surrender representation on a successful scheme than in previous occupational cycles.

That is borne out in Savills own transactional evidence. Across our deal book of new lettings, regears and renewals, only 8% of occupiers vacated between 2023 and 2026, meaning 92% renewed their lease commitments. This implies very little natural churn and, therefore, very limited regeneration of tenant line-ups through normal lease expiry. More often, occupiers vacate in order to relocate into right-sized, better-configured or better-pitched units, rather than exiting the market altogether. Where units do come back, it is typically for specific reasons rather than because retailers are withdrawing from the sector. Argos is the clearest example, as Sainsbury’s undertook a policy of assimilating stores into its wider estate strategy, while Poundland’s restructuring also returned some space.

This continued retention of physical space reflects the ongoing relevance of the store within the retail warehouse format. Bricks and mortar remain highly important to retailers in this segment, not simply as a point of sale but as a driver of omnichannel performance. According to GlobalData, click and collect accounts for 11.3% of UK online spend, and the associated transfer of shoppers into stores continues to drive additional in-store expenditure. In some categories, that uplift is significant, reflecting a strong store halo effect. In electricals, for example, stores see a 51.9% uplift in sales from click-and-collect and online purchases that are researched or browsed in-store (Figure 5). That helps explain why retailers are reluctant to relinquish units even where lease events provide an opportunity to do so.

Structural shift in the occupier mix

The evolution of the occupier base has also been important in sustaining demand. In its earlier phase, the retail warehouse market was heavily shaped by traditional bulky goods – furniture, carpets, household goods, electricals and DIY – categories that naturally suited larger-format stores and car-borne shopping. While these uses remain important, they no longer dominate the sector in the way they once did. Bulky goods, homewares and electricals accounted for 46.8% of UK retail warehousing floorspace in 2012; by 2025 that had fallen to 31.0%.

The most significant growth has instead come from grocery and discount variety stores. Grocery has increased modestly and now accounts for 11.0% of out-of-town (OOT) floorspace, although expansion by the traditional “big four” has been limited by the challenge of delivering new large-format stores. More substantial growth has come from discount grocery, whose share has increased from 1.3% in 2012 to 16.6% in 2025, driven by the continued expansion ambitions of Aldi and Lidl. Importantly, this analysis relates only to space on existing retail warehouse stock and therefore excludes a significant amount of standalone roadside growth, meaning the true OOT presence of the discount grocers is larger still.

Discount variety has also expanded materially, rising from 4.2% of floorspace in 2012 to 15.9% in 2025, reflecting the growth of operators such as Home Bargains, B&M and The Range. By contrast, the proportion of floorspace occupied by fashion, comparison goods, leisure and food and beverage operators has changed relatively little over the last decade and a half. The key structural change has therefore been the increased weight of value-led and essential retailing within the sector – a shift that has improved the market’s resilience in a weaker consumer environment.

Who is taking space?

Acquisition activity continues to reflect these themes. In 2025, the most acquisitive operators on retail parks included The Range, which has spent the last 18 months converting and regearing former Homebase units, with 48 conversions completed last year. Tapi also moved quickly following the Carpetright administration, completing 30 deals. Discount grocery operators remained highly active, while B&M completed 19 units and Home Bargains 13, underlining the scale of demand from value-led retailers. Low-cost gym operators also remained acquisitive, led by PureGym, while The Gym Group continues to carry strong requirements into 2026.

A notable feature of the current cycle is that major high street operators are also increasingly willing to expand OOT. Next and Superdrug entered the top 15 most acquisitive operators in 2025, and M&S only narrowly missed out. So far in 2026, M&S and Skechers have followed a similar strategy, mirroring the moves already made by Next and Superdrug. Rather, this reflects a more holistic approach to expansion, with operators recognising the complementary role of OOT formats alongside locations in key city centres, particularly given lower service charges, abundant free parking and proximity to residential catchments.

At a sector level, lettings in Q1 2026 have shifted further towards value and food-led uses compared with the 2025 full-year position. The proportion of bulky and homewares lettings has fallen as much of the former Homebase and Carpetright stock has now been absorbed, while grocery and discount grocery have taken a greater share of new activity. That is consistent with the acquisition strategies of Aldi, Lidl, Farmfoods and Iceland / The Food Warehouse, all of whom remain among the most active occupiers in the market (Figure 7).

Encouragingly, this shift in sectoral mix has not altered the overall positioning of occupier demand. In both 2025 and Q1 2026, value-led operators accounted for 34% of new lettings, with the balance comprised of mass-market retailers (63%) and a small proportion of aspirational brands (3%). This stability reinforces the structural weight of value and mid-market demand within the retail warehouse sector, even as the composition of occupiers continues to evolve.

New entrants reinforce the market’s appeal

The breadth of demand is further demonstrated by the range of new requirements now targeting the sector across a variety of formats. Harvey Norman is among the most notable – a large-format, omnichannel retailer spanning furniture, electricals and technology – whose initial expansion has already delivered openings at Merry Hill in Dudley and Gracechurch Shopping Centre in Sutton Coldfield, providing an early foothold and introducing the brand to the UK market. While these stores mark an important first step, the Australian retailer is continuing to seek additional space that aligns more closely with its preferred scale and format. As such, Harvey Norman remains actively in the market for appropriate OOT accommodation. The constraint, therefore, is not demand but availability: with vacancy at historically low levels, securing units of the size and configuration required for operators of this type is becoming increasingly challenging.

A number of brands more traditionally associated with high streets and shopping centres are also beginning to test the format, including Footasylum, Waterstones, Oliver Bonas and Brows & Nails. For these operators, this is less about migration away from established channels than about recognising that retail parks can also support strong performance where the offer and catchment are right.

The same broadening is visible in food and leisure. New quick-service restaurant entrants include Turkuaz, Raising Cane’s, Chick-fil-A and Pret A Manger, while leisure requirements are emerging from brands such as LoveGym and Chuck E. Cheese. The rapid growth of padel is also beginning to generate genuine occupational demand, with a number of operators actively seeking space, including Slazenger Padel Clubs, Hurlands and Rocket Padel.

That said, demand is not being driven solely by new entrants. Some of the most active requirements continue to come from established occupiers that have been targeting out-of-town space for some time. In the 5,000–15,000 sq ft size band, requirements span a broad mix of retailer types. Core retail and variety operators include Superdrug, Mountain Warehouse, Jollyes and JYSK, while home and bulky goods occupiers such as Dreams, Wren Kitchens, Oak Furnitureland, Oak&More and NCF Living remain active. Lifestyle and leisure-led retail requirements are evident from brands including JD Sports, Skechers and Waterstones. Gyms in this category include The Gym Group, PureGym and JD Gyms. At the larger-format end of the market, with units above 20,000 sq ft, Matalan, M&S, Wickes, B&Q, B&M, The Range, Home Bargains, Aldi, and Lidl remain among the most active occupiers, underlining the depth of demand for scarce large-format accommodation.

Importantly, that demand is underpinned by a relatively strong covenant base. INCANS Tenant Global Score, which assesses the financial strength and stability of retailers using public accounts data, indicates that the sector’s leading occupiers remain in robust health. Of the top 50 operators by total number of units across retail, leisure and shopping parks combined (excluding food and beverage), 37 (74%) are classified as either ‘low risk’ or ‘very low risk’ in terms of failure and sit above the average INCANS Tenant Global Score for the top 50. In our view, this leaves the risk-return relationship in retail warehousing looking more favourable than in many other sectors, particularly given the strength of the occupational fundamentals. In an uncertain economic environment, the financial resilience of the occupier base provides an additional layer of support.

Effective space availability is lower than headline vacancy implies

Vacant space is, however, even scarcer than the headline void rate suggests. A vacancy rate of 4.3% implies around 17.5 million sq ft of available space nationally, but 42.7% of that has been vacant for three years or more, either because it is subject to lengthy planning constraints or because it is no longer fit for modern occupational requirements. Excluding that long-vacant stock, effective vacancy falls to just 1.8%, equivalent to approximately 7.5 million sq ft of genuinely available space.

This is exceptionally low when set against average net take-up of 8.0 million sq ft per annum over the last three years. In practical terms, the market currently holds less than one year’s worth of supply, even before accounting for very low tenant churn and the absence of meaningful new retail warehouse development. This has contributed to the emergence of more aggressive leasing tactics, including interposed lease agreements, as retailers attempt to secure future occupation of scarce space ahead of expiry. Even the relatively short-lived rise of “insurance leases” in recent years was revealing: it highlighted just how willing occupiers were to commit time and resource to uncertain future opportunities simply to secure queue position in a supply-starved market.

Rental growth prospects

These conditions continue to support rental growth, although the pace has become more selective. Average net effective rents across the market increased by just 0.1% in 2025 to £21.03 per sq ft, following 7.0% growth in 2024. On the surface, this appears to suggest a sharp slowdown. However, it is more accurately understood as a moderation following a period of substantial recovery. Since 2021, the sector has delivered cumulative rental growth of 24.8%, following the end of its earlier rent rebase.

The recent plateau reflects a more cautious occupier environment rather than a weakening of fundamentals. Retailers are currently absorbing a wide range of cost pressures, including higher labour costs, National Insurance increases, business rates bills, volatile fuel prices and more cautious consumer demand. At the same time, very high retention rates mean there is less open-market evidence from which rental tone can be established. In that context, rental growth is now becoming more selective, shaped increasingly by location, supply profile, tenant demand and unit configuration, rather than being delivered uniformly across the market.

This is best illustrated in larger-format space. Units of 20,000 sq ft and above recorded rental growth of 17.8% in 2024 and a further 8.2% in 2025, taking average rents to £15.32 per sq ft. That has been driven in part by demand for larger boxes following the Homebase and Carpetright administrations, but it also reflects the increasing scarcity and strategic importance of these units. Geography also matters. Markets that are undersupplied relative to the national average of 5.95 sq ft of retail warehousing floorspace per consumer achieved average rents of £21.70 per sq ft in 2025, compared with £20.43 per sq ft in oversupplied locations. For investors, this continues to point towards stronger long-term income prospects in structurally under-provided towns.

There are also signs that occupiers are becoming more willing to commit for longer where the right space becomes available. Across Savills deals, average term certain increased to 9.56 years in 2025, up from 7.21 years in 2024. This is partly being driven by larger units, which are more expensive to fit out and more difficult to replace, but it also reflects the simple reality that where good-quality space becomes available, competition remains intense.

Business rates and occupational cost pressures

The business rates reforms introduced from 1 April 2026 have provided some support, although the benefits are uneven. Smaller retail warehouse units with rateable values up to £51,000 have seen the greatest reduction in liability, averaging 15.58% across the sector, while larger stores with rateable values above £500,000 have seen a smaller reduction of 9.16%. Regionally, the South East has seen the greatest aggregate reduction (-16.56%), while the East has seen the least (-7.77%). Overall, the direction of travel is positive and reflects a welcome recognition by the Government of the occupational burden borne by retail operators.

That said, many occupiers would argue that the relief has only partially offset rising operational costs elsewhere. Store rates savings in some cases are being mitigated by higher liabilities on logistics and industrial space, while increases in National Insurance and the minimum wage following last year’s Budget continue to place upward pressure on operating costs. As such, although business rates reform is supportive at the margin, it does not materially alter the broader picture of a more disciplined and selective occupier market.

UK QSR Drive-Thru and Drive-To rents: Growth drivers and market dynamics

Savills dealbook data for the drive-thru and wider drive-to quick service retail (QSR) market indicates that net effective rents reached an average of £51.06 per sq ft in 2025, representing annual growth of 9.5%. This continues to position QSR assets at a significant premium to the wider retail warehouse market, reflecting both strong occupational demand and structural cost pressures.

This analysis focuses on lettings within existing retail park schemes - typically involving the occupation of vacant units or, more commonly, the reconfiguration or intensification of infill space within established parks to accommodate QSR operators – thereby reflecting rental performance within established assets rather than standalone roadside development-led activity.

Nevertheless, the primary driver of rental growth within existing schemes remains the intense competition for a limited pool of suitable units, underpinned by a cohort of well-capitalised occupiers, many with strong covenants. Throughout 2025, a number of major operators were particularly acquisitive within retail park environments: Costa Coffee and Popeyes each opened 13 units, while Greggs, McDonald’s and Starbucks delivered nine openings apiece. Further expansion was recorded from Burger King (7 units) and Five Guys (6 units).

This momentum has carried into 2026, with Q1 activity seeing the same brands feature among the most active acquirers, each securing between two and five additional locations on existing schemes. This is being driven not only by in-store performance, but increasingly by the need to support expanding delivery operations, with the UK food delivery market now exceeding £14 billion and continuing to grow.

As a result, operators are actively seeking to densify their networks and maximise coverage, pursuing a range of formats and locations. Retail parks – where infill space can be created or repurposed – remain particularly well suited to this strategy, offering scalable opportunities to enhance both customer reach and last-mile delivery efficiency.

While institutional-grade operators underpin rental tone at the prime end, competitive tension is also being amplified by newer entrants and franchise-led expansion. Operators with weaker covenants or more limited track records are often required to bid more aggressively to secure space within established retail park locations. As a result, these occupiers can set higher marginal rental levels, as landlords weigh covenant strength against leasing velocity and the benefits of brand diversification.

In parallel, elevated development costs are exerting upward pressure on rents. This reflects both the increasing cost of delivering bespoke, purpose-built drive-thru units and the capital required to convert existing retail accommodation into QSR-compliant space. Even within retail parks, repurposing units – incorporating extraction, servicing and operational layouts – can involve significant expenditure. These costs are increasingly being reflected in rental levels, helping to sustain growth in net effective rents.

As a consequence of these combined demand and cost-side dynamics, average UK QSR rents on existing retail park schemes are now more than double those typically achieved across the wider retail warehouse sector, underlining the sub-sector’s relative resilience and attractiveness.

Upward-only rent reviews: Implications for the retail market

The Government’s proposed ban on upward-only rent reviews (UORRs), following Royal Assent of the English Devolution and Community Empowerment Act in April 2026, represents a notable shift in leasing policy. However, in practical terms, its immediate impact is expected to be limited. The legislation is not retrospective and is unlikely to come into force until 2027 at the earliest, meaning existing leases will continue to operate under current terms. Furthermore, the retail market has already undergone significant structural adjustment over the past decade, with shorter leases, widespread rent rebasing and more flexible leasing structures becoming the norm. As such, the direction of travel set by the legislation largely formalises trends that are already embedded within the market.

From an occupational perspective, the changes are most likely to influence lease negotiations at the margin rather than fundamentally alter occupier behaviour. Tenants may benefit from greater flexibility through the potential introduction of upward and downward rent reviews, and a statutory ability to trigger reviews themselves. However, the extent of this advantage will vary by location. In prime retail environments, where demand remains robust, rental levels are likely to remain well-supported, and any downside risk to landlords will be limited. However, in the strongest locations, landlords may be more reluctant to grant longer leases where this increases exposure to potential downward rental risk, which could limit the extent to which occupiers benefit from this added flexibility. In contrast, secondary and more challenged locations – where demand is weaker – could see increased rental volatility, with occupiers better positioned to negotiate reductions where market evidence supports it.

More broadly, the role of alternative lease structures is expected to increase. Subject to the final form of the legislation, index-linked reviews, stepped rents, and turnover-based models are likely to remain prevalent, particularly where they provide a clearer alignment between rent and trading performance. However, there remains some uncertainty as to the extent to which structures such as stepped rents and index-linked reviews will be permissible under the new regime, which may constrain their use depending on how the legislation is implemented. Indeed, these structures already offer many of the flexibilities the legislation seeks to introduce, meaning the practical shift may be evolutionary rather than transformational. That said, a degree of uncertainty remains around the precise form that compliant rent review mechanisms can take, particularly in relation to collars, hybrid structures and turnover ratchets, and this is likely to prolong more complex and protracted lease negotiations in the near term.

In terms of strategy, occupiers should continue to prioritise portfolio optimisation and flexibility. There is an opportunity to secure more responsive lease terms in certain locations, particularly where supply-demand dynamics are weaker, but this should be balanced against the operational value of location quality and network coverage. Early engagement with landlords and careful structuring of lease terms will be key, particularly as the legal framework continues to evolve through consultation and guidance. For most occupiers, the optimal approach is likely to remain pragmatic – focusing on securing the right space, in the right location, on commercially sustainable terms – rather than seeking to materially reconfigure leasing strategies in anticipation of legislative change.

From an investment perspective, the removal of UORRs introduces a modest increase in income risk, but again, this is unlikely to be uniform across the market. Prime assets with strong occupier demand and limited vacancy risk are expected to remain highly defensive, with rental tone underpinned by competitive tension rather than lease mechanics. However, secondary assets may face greater scrutiny. That said, in much of the secondary market, lease lengths are now typically short (often under five years), meaning exposure to rent reviews is already limited. As a result, the direct impact of these changes may be less pronounced than assumed. Greater sensitivity may instead sit within assets anchored by supermarkets or other long-income tenants, where longer leases and index-linked reviews are more common, and where the implications of regulatory change are less certain. The potential for downward rental movement, combined with continued uncertainty around lease structures, could result in more cautious underwriting and a modest softening of pricing until greater clarity emerges.

More fundamentally, investor focus is likely to shift further towards asset-level fundamentals, including tenant quality, location, asset configuration and alternative-use potential. The divergence between prime and secondary retail is therefore expected to widen. Lenders and investors will increasingly assess assets on their underlying occupational resilience rather than relying on lease structures to provide income security. However, it is also important to recognise that prime assets, which are more likely to have longer leases in place, may in theory be more exposed to the introduction of downward reviews. In practice, this risk is expected to be mitigated by stronger rental growth prospects in these locations, meaning impacts on income may remain limited. Over time, as legacy leases work through the system, the market is likely to adapt, with pricing and structuring adjusting accordingly.

Overall, while the proposed ban on upward-only rent reviews represents a significant policy signal, its real-world impact on the retail sector is likely to be gradual and nuanced. The market has already evolved in ways that align closely with the direction of the legislation, and while it introduces additional complexity and some incremental risk, it does not fundamentally alter the key drivers of rental value. Supply and demand, location quality and occupier performance will continue to dictate outcomes, with the legislation acting as a secondary, rather than primary, influence on market behaviour.

Retail warehouse sector outlook

Looking ahead, retailer performance is likely to remain mixed, but the retail warehouse market should continue to compare favourably with most other retail formats. The consumer backdrop remains difficult. Higher energy bills, elevated fuel prices and weaker major purchase sentiment will continue to weigh on discretionary and big-ticket spend, and trading is likely to remain polarised between more resilient essential, value and trade-led occupiers and those more exposed to confidence-driven demand.

However, from a property perspective, the sector’s occupational fundamentals remain unusually strong. Development is minimal, effective vacancy is exceptionally low, churn is limited and occupier appetite remains broad-based. In these conditions, softer retailer trading is more likely to moderate the pace of rental growth than to alter its direction. Where space is scarce, schemes are well located and occupational demand is deep, landlords should continue to achieve rental progression, particularly in larger-format units and structurally undersupplied markets.

The present period of flatter headline rents should therefore be viewed as a pause within a broader recovery rather than a turning point. The strength of retailer retention, the quality of the current occupier base and the market’s persistent lack of supply all point towards further growth over time, albeit in a more selective and asset-specific form. For investors, that remains a compelling proposition. In a market where value, convenience and essential retail have become increasingly dominant themes, retail warehousing continues to offer one of the strongest combinations of occupational resilience and medium-term income growth prospects in the UK commercial property sector.

_{Read the articles within Spotlight: UK Retail Warehousing below.}