Retail assets driving investor interest

The rise of e-commerce, later joined by the Covid-19 pandemic and the higher interest rate environment that followed it, led to forecasts of a retail apocalypse from many with views on the future of the market.

It is now well understood that these predictions were hasty, even if some pockets of the retail sector proved more susceptible to these mega shifts than others. And while it is true that institutional investors have retreated from smaller lot sizes in recent years, our latest commercial auction data shows that there remains strong investor appetite for these types of retail assets, particularly among private landlords, opportunistic private property companies, and family offices.

Of the £213m we raised under the hammer in the first half of this year, £127m came from retail, representing 60 percent of total turnover. In terms of volume, 198 of the 323 lots we sold were retail, of which 161 were solus high street shops, 23 supermarkets and convenience stores, eleven parades, and three shopping centres. Within this, there are three types of retail assets that are experiencing particularly strong demand.

The first is assets located among neighbourhood shopping parades, particularly those with a local rather than national tenant mix; think local butchers, bakeries and delicatessens. These assets typically sit in suburbs and neighbourhoods where the catchment shops daily and locally, which translates into resilient income streams, fitting into a wider market shift in interest towards convenience-led retail. They can also offer value-add potential, often containing vacant upper parts with change-of-use options.

The second is solus high street shops with under-utilised upper floors, especially as permitted development rights - planning rules that allow you to extend or improve a property without making a full planning application – create opportunities to create better performing assets in a more hassle free and efficient way.

The third is convenience-led property and supermarkets, where long leases and index-linked reviews continue to prevail. Some of the better-known convenience operators are still signing 15-year unbroken leases, offering a high degree of income security, which is proving to be particularly attractive to investors in the current environment. Again, this is linked to a wider shift we are seeing in the real estate market towards ‘needs-based’ real estate offering stable income streams amid volatility in traditional fixed income investments such as bonds.

Across all these asset types, however, the key consideration is not lease length or location, but sustainable rents. Buyers will price off true rental value today, and where a rent looks too full, they will discount it accordingly, especially where the unexpired lease term is short.

Sector sentiment has improved further by high street retail vacancy rates settling at around 12 to 13 percent nationally. Stability, even at an elevated level, is worth a great deal to buyers looking to underwrite for income. It helps too that retail is still overwhelmingly let on FRI terms, with the tenant responsible for insurance, rates and maintenance. Compared with residential investments, most high street retail assets are relatively easy to own and manage, which matters a great deal to private investor owners that manage the assets themselves.

Ongoing shifts in consumer habits are working in the sector's favour, too. Banking and post office counters, and increasingly pharmacy services, are being absorbed into convenience stores and supermarkets, underpinning footfall as occupiers and consumers embrace ‘one-stop’ shopping.

Appealing entry yields are also playing a role in supporting demand. High street retail continues to trade some way above other sectors, and the spread over borrowing costs gives investors an income buffer few other asset classes are offering. The obvious question is whether high street yields have now peaked. With rents stabilising and tenant defaults easing, my answer is probably yes.

On pricing, short-let retail that is overrented is regularly producing returns well into double digits, which higher than anticipated interest rates have probably contributed to. It is now rare to find high street yields down at 5 or 6 percent outside very select centres, which represent the perfect product for an investor. Lot size is still a factor, with the higher returns generally on offer for the larger lots.

Out of town and on the edge of town, supply constraints are a major consideration. Another consequence of a higher interest rate environment is that there is a dearth of new supply coming forward. Trade counters – which combine light industrial warehouse space with a customer-facing front showroom – remain particularly popular, though we don’t classify them as retail even though they are quasi-retail/quasi-industrial assets. Buyers associate trade counters with blue-chip covenants and long-dated income, with supply-constraints keeping vacancy rates low.

The supply and demand story on smaller high street assets is more straightforward. They have largely been repriced, and the institutions have, by and large, disinvested. That has created the space for private landlords, opportunistic property companies and family offices to buy, and buy readily.

None of which is to say the sector has stood still. Retail has had to reinvent itself, and it has. Food and beverage, health and wellness and fitness concepts are filling space that traditional retailers vacated, and some centres are functioning as community hubs in all but name.

Overall, sensible, realistic pricing remains the condition of success, and some strands of retail are clearly better received than others.

This article was first published on 2nd October 2026 in Estates Gazette. To view the article, click here.