News

European retail set for modest growth

News

Shifali Gorka

26 February 2025

Retail

This rate exceeds both real GDP growth (1.4% per annum) and real disposable income growth (1% per annum), representing a modest recovery for the sector.

Investor confidence in retail is also strengthening, as retail investment volumes increased by 11% in 2024, reaching €25.4bn (£21bn). This growth was largely driven by shopping centre transactions, which rose by 27% compared with 2023, highlighting demand for prime assets.

However, secondary shopping centres have been more difficult to sell due to higher vacancy rates.

UK retail stood out as attracting the most positive investment sentiment at net 69%, ahead of France (40%) and Germany (33%).

In terms of the vacancy rates, the report found prime retail vacancies have stabilised at 3% as of Q3 2024, a notable improvement from 4% in 2020. However, challenges remain, particularly in shopping centres, where vacancy rates have risen to 6.5%.

In contrast, retail warehouses and high street vacancy rates have seen a decline over the past two to three years, reflecting renewed demand for select prime locations.

Retail rents

After experiencing significant declines between 2019 and 2022, European prime retail rents are forecast to return to annual growth of 1.3% from 2025 to 2029.

Within this recovery, France is projected to lead, with shopping centre rents rising by 2.4% per year and high street retail rents increasing by 2% per year.

Retail yields

According to forecasts, core European shopping centre and high street retail yields are expected to tighten by 40 and 30 basis points, respectively, by 2029.

Shopping centres are expected to provide a 6.4% yield, while high street retail is expected to deliver 5.1%, both exceeding the 5% average across the non-retail sector, suggesting that prime assets will become more competitive among investors in the years ahead.

Finally, as government bond yields are expected to remain elevated for longer than previously anticipated, some investors may turn to European retail for its relative safety and strong current income returns.

Physical retail is also expected to stabilise amid e-commerce expansion. The shift toward online shopping remains a defining trend, with e-commerce expected to make up 20% of total retail sales by 2029, compared with 16% in 2024.

Despite this ongoing transformation, in-store retail sales in Europe are forecast to grow by 0.6% annually over the next five years, indicating a stabilisation of physical retail as consumer behaviour adapts.

Outlook

Overall, the European retail sector appears to be entering a phase of modest but stable growth, driven by resilient consumer demand, stabilising rents and renewed investment activity.

The report said while challenges remain – particularly in the shopping centre sector – the broader outlook for retail real estate suggests a return to sustainable, long-term performance.

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The European retail sector is showing resilience in the face of economic uncertainty, with real retail sales in the Eurozone projected to grow at 1.7% per annum from 2025 to 2029, according to AEW’s The Long-Awaited Renaissance of European Retail report. This rate exceeds both real GDP growth (1.4% per annum) and real disposable income growth (1% per annum), representing a modest recovery for the sector. Investor confidence in retail is also strengthening, as retail investment volumes increased by 11% in 2024, reaching €25.4bn (£21bn). This growth was largely driven by shopping centre transactions, which rose by 27% compared with 2023, highlighting demand for prime assets. However, secondary shopping centres have been more difficult to sell due to higher vacancy rates. UK retail stood out as attracting the most positive investment sentiment at net 69%, ahead of France (40%) and Germany (33%). In terms of the vacancy rates, the report found prime retail vacancies have stabilised at 3% as of Q3 2024, a notable improvement from 4% in 2020. However, challenges remain, particularly in shopping centres, where vacancy rates have risen to 6.5%. In contrast, retail warehouses and high street vacancy rates have seen a decline over the past two to three years, reflecting renewed demand for select prime locations. Retail rents After experiencing significant declines between 2019 and 2022, European prime retail rents are forecast to return to annual growth of 1.3% from 2025 to 2029. Within this recovery, France is projected to lead, with shopping centre rents rising by 2.4% per year and high street retail rents increasing by 2% per year. Retail yields According to forecasts, core European shopping centre and high street retail yields are expected to tighten by 40 and 30 basis points, respectively, by 2029. Shopping centres are expected to provide a 6.4% yield, while high street retail is expected to deliver 5.1%, both exceeding the 5% average across the non-retail sector, suggesting that prime assets will become more competitive among investors in the years ahead. Finally, as government bond yields are expected to remain elevated for longer than previously anticipated, some investors may turn to European retail for its relative safety and strong current income returns. Physical retail is also expected to stabilise amid e-commerce expansion. The shift toward online shopping remains a defining trend, with e-commerce expected to make up 20% of total retail sales by 2029, compared with 16% in 2024. Despite this ongoing transformation, in-store retail sales in Europe are forecast to grow by 0.6% annually over the next five years, indicating a stabilisation of physical retail as consumer behaviour adapts. Outlook Overall, the European retail sector appears to be entering a phase of modest but stable growth, driven by resilient consumer demand, stabilising rents and renewed investment activity. The report said while challenges remain – particularly in the shopping centre sector – the broader outlook for retail real estate suggests a return to sustainable, long-term performance.