CRE Corner Ep#1 | Retail trends and transformations – A revival on the horizon

Kinexio

13 February,2025

1 min read

CRE Podcast Ep1 – The shape of retail

Stephen Springham, Partner, Head of UK Markets, Head of Retail Research, Knight Frank

A retail renaissance in the making

The idea that retail is in terminal decline has been debunked. Despite significant challenges, the sector is undergoing a revival with positive retail trends showing. Stephen Springham of Knight Frank referred to this as a “retail renaissance,” noting that while challenges persist, the industry is on “much firmer footing than we have been in years.”

The shape of retail podcast delves into the trends driving this revival, from recalibrated strategies to the integration of leisure and retail.

Learning from structural failings

In 2018, Knight Frank’s The Price of Change report identified ten structural failings in retail. Reflecting on this, Stephen said,

“I’m not blind to the fact that we still face huge challenges… but they have been addressed to some degree, one way or another.”

While not all issues have been resolved, significant progress has been made, particularly in areas like portfolio management and operational efficiency.

Knight Frank’s retail trends report, Retail Renaissance: The Price of Change 2.0, examines the transformative shifts within the UK retail sector, highlighting its unexpected rise as the best-performing commercial real estate (CRE) class in 2023. This achievement is credited to proactive measures addressing ten identified ‘Structural Failings’ that have historically hampered the sector. Key insights include:

Addressing Structural Failings: Significant progress has been made across all ten ‘Structural Failings,’ particularly in intangible areas such as tackling the complacency that has long characterised the industry.
Adjustments to Property Costs: Over the past five years, retail rents have fallen by an average of 4.5%, helping to correct prior property cost inflation. These declines have now largely stabilised.
Balancing Supply and Demand: While reducing oversupply (the #1 ‘Failing’) has been a gradual process, the occupational markets are far more balanced than they were five years ago.
Operational Challenges Persist: Despite improvements, cost inflation (#5 ‘Failing’) remains a significant challenge for retail operators, highlighting the need for continued efforts in this area.

Recalibrating retail strategies

Retailers have shifted from aggressive expansion to calculated growth. As Stephen explained,

“Retailers now realise you can’t put all your eggs in one basket.”

Multi-channel approaches have become the norm, with physical stores playing a critical role in supporting online operations.

This recalibration is evident in how retailers invest in their physical estates. Stephen highlighted the growing understanding of the “symbiotic relationship” between physical and online channels, where stores serve as vital components of the overall retail ecosystem.

The role of leisure in retail spaces

Leisure is no longer an afterthought in retail environments, or one of those short term retail trends. “Leisure and retail are working more closely than they had previously,” Stephen observed, noting that food and beverage offerings, experiential attractions, and entertainment are now integral to the retail experience.

However, there are risks. The food and beverage sector, heavily influenced by private equity, faces potential operator fallout Stepehen warns;

“There’s a lot of players that may or may not go the distance,”

Preparing for peak retail trading periods

The lead-up to Christmas is a critical period for retailers. Planning starts as early as January, with retailers focusing on sourcing the right stock in the right quantities. “It’s all about execution,” Stephen noted.

“The ones that are left licking their wounds are the ones that overbought really, bought too much stock in. But again, I think given the market conditions back in January when retailers were buying in stock they weren’t in a massively complacent mode. So, I would think that particular pitfall could largely be avoided this time around”

Retail’s resilience and innovation

Retail’s revival is a testament to its adaptability. By embracing innovation, recalibrating strategies, and integrating leisure, the sector is well-positioned for the future.

See also

CRE Corner Ep#2 | The power of retail data
CRE Corner Ep#1 | Retail sustainability, crime, and the challenges ahead

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