Article | Adaptive Spaces
Retail's resilience: Prime assets lead the way
May 1, 2025 7 Minute Read
Introduction
At first glance, the retail market may seem bleak. CBRE’s monthly index reveals that average retail rents are over 10% lower than a decade ago, and values over 30% lower. Still, this data masks the sector’s nuanced performance, and there are reasons to be optimistic. For example, London’s New Bond Street has recorded record rents, increasing by over 90% from 2015. When looking at overall sub-sectors, rents have remained most resilient in retail warehouses. This reflects a sustained surge in popularity from consumers and occupiers that started during the pandemic. Across all sub-sectors, prime retail is showing greater resilience than the wider market.
Occupier Market
High-quality retail spaces in the best locations drive strong demand from occupiers. These assets encapsulate optimum footfall and provide suitable space to deliver best-in-class experiences for consumers.
To illustrate the impact on rent, we have compared the relative performance of higher and lower quality retail assets, using MSCI data that splits retail sub-sectors based on the equivalent yields of the assets in their dataset. Each yield quartile provides a proxy of asset quality, with the lower quartile range an appropriate proxy for prime assets.
Figure 1: Rental Value Growth by Equivalent Yield Quartile
Standard retail shows the greatest divergence in market rent performance between the quartile ranges. Low quality assets rents have fallen by almost 40% over the decade, exacerbated by the pandemic. For prime assets, rents have now recovered and are 5% ahead December 2014 levels. This has been driven by competitive tension at prime locations with tight supply. For example, our latest Central London Retail Market Summary reveals that of the five prime streets tracked, all have a sub 5% vacancy rate. At the end of 2024, Oxford Street’s availability was 8.5%, a significant contrast to the heights of over 40% seen during the pandemic.
Retail warehouses follow a similar rental trend, albeit this is slightly more muted. Market rents of lower quartile assets are broadly in line with December 2014, marking a recovery since the pandemic, whereas upper quartile rents are down by 23%. Retail parks continue to exhibit the highest occupancy levels across the retail sub-sectors due to strong occupier demand, which may attribute to less divergence between non-prime and prime assets.
However, shopping centre performance shows a different trend. According to MSCI, although lower quartile (prime) assets continue to outperform, market rents are still 15% below 2014 levels. While prime shopping centres (i.e. those in the top 30) have performed well, the squeezed middle, lacking value-add with strong out-of-town competition, remain a distressed sector with high vacancy rates. Large retailers leaving the market, such as department stores, has amplified this.
Although prime shopping centre rents have experienced a slower recovery, occupancy remains high at the best locations which is expected to drive rental growth. For example, in 2024, Unibail-Rodamco-Westfield reached the highest occupancy level since 2017, with their UK portfolio vacancy declining from 6.9% to 5.8%, driven by long-term leasing deals. Landsec’s retail portfolio also has occupancy exceeding pre-pandemic levels at 96%. The REIT has reported increasing demand for larger format stores, particularly from global retailers which has contributed to significantly declining vacancy.
The above analysis of market rent performance not only highlights that prime rental growth has been better insulated against the headwinds faced in the last decade, but that this has become even more apparent throughout reporting period.
Investment Market
Prime retail assets have regained appeal for investors, driven by their more resilient cash flows and high yields relative to other sectors. Higher yields have resulted from longer-term repricing of retail property investments, but prime retail assets have seen less repricing when compared with lower quality stock.
Using MSCI data on performance by yield quartile, we can illustrate this trend across all three retail sub-sectors. Assets that fall into the lower quartile yield band (our proxy for better quality properties) have seen better capital value performance than other assets in the same sub-sector, echoing the patterns seen in market rents.
Figure 2: Capital Value Growth by Equivalent Yield Quartile
However, there are some differences. While the yield quartiles clearly distinguish capital value movements in the standard retail segment, this is not the case for retail warehouses. While the retail warehouses in the lower quartile yield range continue to outperform, capital value changes in the other two segments were more closely aligned over the reporting period.
Another notable difference between market rent and capital value trends is the relative repricing that has taken place since December 2014. For all retail sub-sectors, the current discount applied to capital values is greater than market rents – this is most apparent for shopping centres. While current market rents for lower quartile shopping centre assets are 15% below December 2014, a greater discount has been applied to their capital values (56%).
Figure 3: CBRE Monthly Prime Yield, five-year Swap Rates
Figure 3 illustrates how outward yield movements have contributed to greater falls in capital values than rental values for retail assets. From 2018, there was a gradual increase in prime yields for all three retail sub-sectors that was exacerbated during the COVID pandemic in 2020 and 2021. Prime retail warehouse yields rebounded in 2021, reflecting the increased appeal of this retail format during the pandemic. However, this trend has reversed in recent years due to the rising cost of debt. In contrast, shop and shopping centre yields plateaued after 2018 and required minimal adjustments as interest rates and debt costs increased in 2022.
As a result, investors are taking advantage of the more attractive pricing offered by the prime retail sector. For example, shopping centre transaction volumes reached over £2bn in 2024, marking a seven-year high. A significant proportion of this activity has been driven by investors extending their existing stakes in large retail assets, such as M&G increasing its stake of Cribbs Causeway to 100%, reflecting a revitalised investor sentiment.
Conclusion
While the retail sector faces challenges, prime retail assets show signs of resilience. A tightening of supply through the ongoing reduction in vacancy rates will continue to drive growth in top-tier centres, making them attractive to occupiers, shoppers, and investors alike. As the divide between high-performing assets and their weaker counterparts widens, the evolution of middle and low-tier properties will be pivotal. Factors such as oversupply, catchment affluence, obsolescence, and ownership dynamics will increasingly differentiate winners from losers in the retail landscape. Observing these trends will be critical as the sector adapts to changing market conditions.
Contacts
Gemma Parfitt
Senior Research Analyst
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