According to GlobalData, UK retail parks' annual market value growth is estimated to have reached 1.4% in 2024, with a further 3.0% growth expected in 2025. Positive year-on-year (YoY) estimates suggest the sector remains as popular as ever with the UK consumer.

Indeed, footfall across the sector continues to impress, especially relative to other retail asset classes. Average weekly footfall sees positive growth quarter on quarter (Figure 2), compared to the same timeframe the previous year – the only retail asset class to do so in 2024.

In fact, the last time the sector saw negative growth for footfall across retail parks was in Q3 2022 at the peak of the cost of living crisis, and then it was only very marginal at -0.4%. 2025 has also got off to a strong start, with 2.0% growth on average weekly footfall, 0.4% above the average for UK retail as a whole.

Strong conversion rates appeal to retailers and have helped drive positive retailer performance in the market; however, occupiers' economic outlook is mixed

Continued growth in footfall combined with strong conversion rates is what appeals to retailers in this market.

Savills analysis of data from GlobalData’s How Britain Shops survey highlights how the average UK conversion rates for those retailers surveyed that are pertinent to the out-of-town market are some of the highest in the UK (Figure 3).

The median average across all the out-of-town operators surveyed sits at 64.8%. This sits above the median average for the UK at 59.4% (which encompasses all retailers in the survey), as well as that for predominantly in-town-only operators (whose consumers, on average, complete a purchase only 55.3% of the time).

In fact, when we look at the conversion rates of the individual out-of-town retailers in Figure 1 in more detail, it is predominantly the furniture retailers and big-ticket operators that are dragging the overall conversion rate average down for the market. This makes sense when you consider a customer may want to browse several options and take time to decide before making a large/expensive purchase.

However, many of the comparison goods and grocery operators in the sector sit well above the out-of-town average, suggesting that in this market, consumers are increasingly there to purchase rather than browse, more so than is the case on the high street.

A retrospective look at recent retailer performance shows a number of positive results for the sector’s prominent operators. Tesco’s latest financial results reflect a commendable performance despite another year of strong discounter growth. UK sales (excluding fuel) grew 5.1% for the year ending 22 February 2025, with the grocer’s adjusted operating profit improving 10.6% to £3.1bn, bolstered by a number of cost-saving measures. In its core UK market, Tesco’s food division saw 4.9% like-for-like growth as the focus in the sector shifted from price competition with discounters to premium offers – the strong performance reinforcing further the brand’s position as the UK’s leading grocer.

Nevertheless, despite this commendable performance, Tesco has warned of lower profit expectations of between £2.8bn and £3.0bn in the new financial year as the grocer readies for intensifying competition in the UK market and, perhaps more significantly, a cost of £235m to offset National Insurance contributions.

Herein lies the common theme it seems for UK retailers, with many pointing to minimum wage and national insurance increases as well as business rates relief reduction, which, at the very least for those with recent positive trading results, will pour cold water on their outlook and the profit margins that can be achieved in the short-to-medium term. The see-saw nature of the global economy will exacerbate this problem further for those operators with connections to the US markets, which may lead to further tempering of performance in the near future at least.

Morrisons’ latest positive results (for the 13 weeks ending 26 January 2025) indicate that the grocer has made progress in its turnaround plan, but it too has begun to strengthen its financial position for the year ahead, implementing practical strategy enhancements ahead of expected turbulence in the UK food & grocery market, from rising food inflation, increased National Insurance contributions, and minimum wage hikes.

The brand’s Q1 total revenue improved 2.4% to £4.0bn, whilst in comparison, the UK food & grocery market grew at an average of 2.2% between November 2024 and January 2025, suggesting Morrisons has outpaced the market and improved market share. Having revealed savings of £56 million in its first trading quarter, Morrisons plans to make further cost-cutting measures within stores in Q2.

Dunelm saw a strong start to 2025, with sales increasing by 6.3% for the first three months of the year. This encouraging trading update comes alongside its announcement that it remains on course to achieve its profit target, with its share price rising by 6.5% in early trading. However, this early momentum comes with the warning that it may be short-lived as the increase in labour costs is likely to be passed on in higher prices.

Furthermore, Halfords provides another salient example of an operator that has seen its fortunes improve but has chosen to prepare ahead of growing economic headwinds. Its backloaded FY2024/25 result grew with consumer confidence, exhibiting 1.7% growth for retail sales on a like-for-like basis. In fact, sales were flat in H1 as consumer confidence declined between the July election and the October Budget, but grew in H2 alongside consumer sentiment as shoppers felt freer to spend. While its cost savings of over £30m were greater than the upcoming £23m cost of the October Budget, Halfords has nonetheless stressed its exposure to the country’s general economic position going forward.

Meanwhile, Kingfisher’s UK total sales grew 1.2% for the year ending 31 January, delivering profit growth of 0.6% in spite of higher operating costs. Nevertheless, they have also given a pessimistic outlook for its FY2025/26, indicating that it anticipates either a decline in profits or a marginal increase at the top end, with guidance of between £480m and £540m, as it accounts for increased operating costs as well as uncertainties in consumer sentiment.

New lettings struggle to meet the long-term average, but this is due to a lack of supply rather than a lack of appetite for expansion

New lettings reached 735 across the retail warehouse market in 2024, almost a mirror image of the number of lettings achieved the previous year. This doesn’t take into account the majority of stores taken by operators immediately following both the Carpetright and Homebase administrations. Although a swathe of these stores were accounted for by operators keen to take advantage of the expansion opportunities their demise presented, it takes time before those leases are fully completed and thus feature in the data.

We will return to the Carpetright and Homebase administrations later in this Spotlight when we will undoubtedly see new lettings ramp up in 2025 to reflect the fact these units are once more trading under a different fascia. This has already been evidenced in the recent data on new lettings; Q1 2025 has seen as many as 279 (38% of last year’s total), with The Range topping the charts for new stores with 29, the vast majority of which have come from the Homebase portfolio (Figure 5c).

In terms of the most acquisitive operators last year (excluding F&B), discount gym operator PureGym was the most active for the second year in a row as it continued its aggressive expansion programme. As has been the case for several years, the top 15 expansionists are dominated by value-oriented operators, with B&M (24 units) and Home Bargains (15 units) occupying third and fourth spots, respectively. In addition, the value grocers remain active also, including Farmfoods (14), Lidl (14), Aldi (11) and Iceland/Food Warehouse (11). M&S is new to the top 15 for 2024 as it continues its estate renewal and relocation programme and migration from the high street across a number of towns, keen to appeal to consumers looking for the convenience a retail park store can bring, such as free parking, ease of access, and larger store formats.

F&B operators also remain active, with the now well-established multiple coffee operator and fast food brands continuing to drive acquisitions. Net effective rental growth reached £46.65 on average across the market for drive-thru and drive-to units, a further 3.3% growth on top of the 3.3% we saw in 2023. Rental growth in this sub-sector is undoubtedly due in part to the level of competition and weight of brands vying for space in the market. However, with specific site configuration making opportunities for drive-thrus increasingly more difficult, and the sector’s low void rate making drive-to sites harder to find, net effective rental growth is also a reflection of the need to justify ever-increasing build costs, as operators progressively look to satisfy their expansion ambitions through roadside construction opportunities and pod construction on suitable space found on existing schemes.

Interestingly, the less-established brands in this arena are both willing and perhaps having to pay even punchier rents than the national average suggests in some locations in order to gain a foothold in the market and beat the usual suspects to the prize. The likes of Popeyes (five units) and Wendy’s (three units) have continued from where they left off last year, whilst Black Sheep Coffee and Chaiiwala are new to the top 15 acquisitive F&B brands, with two units each (Figure 5b).

The government’s latest National Planning Policy Framework (NPPF), issued in December 2024, will arguably intensify the competition for space even further. The NPPF outlines much stronger restrictions on where new takeaways can open, suggesting local planning authorities should turn down applications for new fast-food outlets within walking distance of schools or other places where young people congregate in order to mitigate adverse impacts on local health and childhood obesity. Although the current wording of the NPPF makes it open to interpretation, many councils have adopted more specific rules to meet the criteria, such as refusing permission for any new fast food takeaway within 400m of a school. This, of course, makes existing locations, especially those that would potentially not meet the criteria if they were built today, even more valuable to operators, with the potential to push rents even further northwards.

Competitive tension and low voids have seen net effective rental growth across the market in 2004

Void rate in the retail warehouse market remains low, currently standing at 4.6%. The market, of course, saw some fluctuation over the last 12 months. In July last year, the UK retail warehouse vacancy rate had dipped as low as 4.4%, the lowest it had fallen since 2017; however, the subsequent Carpetright and Homebase administrations saw it tick up to 4.9% by year-end, before it started to fall once more in early Q1 2025 to its current level, as those stores increasingly find new tenants.

Nonetheless, despite the failure of two of the sector’s longest-running operators, it is important to point out that at no point did national vacancy climb above 5%. The level of interest and speed at which the best vacant Carpetright and Homebase units were acquired is tantamount to the strong competitive tension that still exists in the market.

Spoiler alert – there is no commercial property sector post-war that hasn’t seen rental growth with a void rate of less than 5%. The retail warehouse market was no different in 2024 and saw strong rental growth in excess of the 4.5% recorded the previous year.

Savills net effective rents grew by 7.0% on average last year across all our open market lettings and regears, placing the current average rent per sq ft at £21.00 (all units excluding F&B). Having seen net effective rents rebase between 2016 and 2020, falling by 31.6% in that time, the retail warehouse market has since seen steady growth. From the nadir in 2020, net effective rents have increased by 24.7%.

Will rental growth continue in 2025? We remain relatively bullish that it will, as vacant space is even more scarce than you might think. The current void rate suggests there is 18.8m sq ft of available space nationally. However, 55% of this space has been vacant for three years or more, either due to lengthy planning negotiations or suggesting it is no longer fit for purpose (10.4m sq ft).

If we remove this from the space that is theoretically available, vacancy falls to 2.1% nationally, equating to only 8.5m sq ft of available space at this moment. When you consider net take-up in recent years has averaged 4.8m sq ft per annum, we essentially have less than two years of supply left in the market, assuming we see no significant retail warehousing development or failures from a number of the market’s leading operators.

With the lack of available space, it may seem logical that the market will continue to see some growth in terms of its net effective rents over the next 12 months. However, with the current economic headwinds both globally and in the UK, the outlook for 2025 is, at this moment at least, filled with uncertainty.

As was the case when the market experiences or indeed anticipates a potential shock event, there is pause for thought from some operators on the acquisition trail. We saw it with the uncertainty that surrounded Covid, and less so during the cost of living crisis.

The recent minimum wage, national insurance, and business rate cost implications have certainly caused some expansionists to tread with a little more caution.

The speed at which the majority of Homebase stores were snapped up suggests some latent demand for larger units in good geographies toward the end of 2025. However, at the same time, we have seen a tempering of demand for c.10,000 sq ft units, with a widening gap between a growing supply of units and a decline in the number of new lettings. In recent years, it was units in the size bracket that were the sweet spot for operators on the acquisition trail and have been much of the driving force behind the net effective rental growth we saw last year.

Therefore, further growth may be harder to capture in 2025 – with potential CVA activity looming for a few operators in the market and a number of others pausing acquisitions at the least, both to assess the impact of budgetary increases and the uncertain nature of the global economy – the potential impact of US trade policy will only increase consumer uncertainty and potentially their desire to spend money. Hobbycraft entered into a CVA this month, and plan to close nine stores, with a further 18 remaining open, only if negotiations with landlords on rent cuts are successful.

Opportunities on the best schemes and in the best towns will, of course, experience less of a challenge; however, some operators outside of these markets may well be keen to do a deal at the right price given their increasing cost concerns, rather than not do a deal at all.

However, as we have seen in the past, when consumers swing into belt-tightening mode, large parts of the retail warehouse market stand to benefit. As we explored in the previous issue of this Spotlight, the out-of-town market is less dependent on big-ticket discretionary spend and increasingly focused on essential and value-based retail, especially with the growth of discount variety retailers and value-oriented grocers.

In a scenario where consumer confidence worsens, and we see a retraction in discretionary spend, it is operators in this space that have, in fact, been best positioned to mitigate the impact of the economic headwinds – particularly the grocers who sell essential everyday products.

Net effective rental growth is nuanced and can vary by geography, existing supply dynamics, scheme appeal, and unit size

Although we have seen strong net effective rental growth in 2024, it is fair to say this growth can be nuanced. It will be no surprise to those with a keen interest in the sector that rents achieved can be influenced by a number of factors: the strength and demographic composition of a schemes catchment, consumer spending power, where a unit/scheme sits amongst the hierarchy of its local competition, and even the size of a unit can play a part in how much net effective rental growth can be achieved.

To illustrate this point, and to highlight one of the key factors that can influence the amount of net effective rental growth that can be achieved, we have taken a deeper dive into retail warehousing supply dynamics at a local level.

The average supply of space for retail warehousing across the UK is currently 5.95 sq ft per head. We have found that in undersupplied catchments, the average net effective rental growth for 2024 is £22.53 per sq ft (7.3% higher than the £21.00 per sq ft average for the UK as a whole). This represents a stronger growth of 14.8% versus the 2023 average.

Conversely, in oversupplied catchments, the average net effective rent across all Savills open market lettings and regears achieved £19.23 per sq ft, which is 2.0% less than the 2023 market average.

The granular nature of this analysis allows us to easily identify markets with significant rental growth opportunities across the UK – a key consideration for landlords and investors alike.

What has happened to the Carpetright and Homebase stores following their administrations?

Carpetright’s administration in July last year saw c.270 stores come back onto the market. Tapi almost immediately swooped in to buy the rival brand in a multi-million-pound deal, selecting to occupy 54 stores from its original out-of-town portfolio. These stores have been opening since that juncture and will continue to open in the coming months, which is partly why we have seen such strong new lettings numbers in Q1 2025 (Figures 4 and 5c).

Based on all the former Carpetright stores that have already been let, the new average net effective rent achieved is £20.71 – not too dissimilar to our UK average of £21.00 per sq ft (accurate at the time of writing). This represents a 10.8% uplift on the average net effective rent seen across the portfolio before the administration – highlighting occupiers’ appetite for the limited space across the market and the opportunities to capture rental growth that brings.

However, as we have already alluded to, there are nuances to the growth that can be achieved. Across the deals that have currently taken place, the highest net effective rental growth achieved was 58.9%, whilst the lowest was a reduction of 36.8%. This shows that not all geographies are equal when it comes to retailers’ wish lists. A number of Carpetright units are still, at this moment, unaccounted for, highlighting the disparity between the best locations and some of the secondary or tertiary stock that will prove less desirable.

Homebase went into administration in November last year, leaving c.140 stores up for grabs. However, the reletting of this portfolio proved to be more covetable, with the vast majority of stores accounted for very quickly post closure – reflective of the stronger demand from the discount operators in more desirable locations, in which the majority of their stores can be found.

The Range, the privately owned general merchandise retailer, snapped up 60 stores from those available, totalling 38%, whilst Sainsbury’s accounted for another 9% (Figure 7). In total, 72% of Homebase units have been accounted for already and are opening in the coming months if they haven’t done so already. 29% of the original portfolio is left, totalling just 1.4m sq ft or 37 units; this highlights the latent demand that has been building for larger units in the market over the last few years.

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