"The most successful landlords we advise are those willing to partner with tenants on flexible lease arrangements, acknowledging this new reality"
- Lindsay Texel - Clarion
The UK high street finds itself at a critical crossroads in 2025. Only two months into the year, major retailers such as WH Smith and New Look have already announced shock store closures.
The challenges facing retail property estates today extend far beyond economic and political headwinds and represent a restructuring of how consumers interact with physical retail spaces. Faced with so many choices as to how, when and where to spend hard-earned wages, retailers are having to fight even harder to entice consumers into brick-and-mortar stores and will need to be as agile as possible to respond to ever-evolving consumer habits.
Rachel Reeves’ autumn budget introduced significant tax reforms that are expected to add huge financial burdens on retailers already operating on thin margins too.
The increase to National Insurance contributions and National Living Wage thresholds means retailers will need to absorb higher employment costs, at a time when consumer spending remains tight, and inflation is on the rise again. Ensuring compliance with evolving regulations, particularly in areas such as sustainability, with the Plastic Packaging Tax increasing year on year since its introduction in April 2022, AI and data privacy means that the cost to retailers in mitigating risk also continues to climb.
Approximately 20,000 UK retailers reported being in financial distress in Q3 last year, with credit risk levels remaining stubbornly high and above long-term averages.
This financial vulnerability has a direct impact on the commercial property market in the retail sector, with landlords concerned about tenant stability and long-term viability – particularly with smaller retailers.
There is a clear difference in approach between smaller high street retailers and larger ones. NI contributions will particularly impact small businesses, leading them to rationalise rather than expand. In contrast, larger retailers’ deeper pockets mean they’re in a much better position to absorb these costs and continue with planned expansion, relocation or refurbishment plans.
Despite these challenges, there remain glimmers of hope and opportunities for growth in the retail sector for those retailers that can build resilience into their businesses to meet the changing retail landscape head-on.
Reimagining retail spaces
The pandemic accelerated the shift toward online shopping, altering the role of physical retail space.
Before the pandemic, in February 2020, internet sales accounted for 19.7% of all retail sales, according to ONS data. According to the latest data in 2024, internet sales account for approximately 27.2% of all retail sales.
The result of this shift is that consumers today expect seamless, accessible and personalised experiences whether shopping online or in-store. This "hybrid shopping journey", where customers research online but complete purchases in physical locations or “click and collect” in-store, demands that retailers and landlords collaborate on creating meaningful in-store experiences that digital channels cannot replicate.
For property owners, this means reimagining retail units to allow retail tenants to accommodate new functions such as showrooms, collection points for online purchases, and experiential spaces that build brand loyalty and facilitate retailers wanting to undertake refurbishment and fit-out projects to better showcase their products and brand.
The most successful landlords we advise are those willing to partner with tenants on flexible lease arrangements, acknowledging this new reality.
Pop-up and temporary stores on high streets have also become popular due to their flexible terms, allowing retailers to test new product ranges and locations. Once established, these retailers can then confidently look at a more permanent store presence. A good example is Trinny London, having opened its first physical store in London's Chelsea, as it continues to grow.
Are shopping centres the beacon of recovery?
Despite the challenges impacting the broader retail market, UK shopping centres have shown resilience and growth.
Rebounding retail demand and improved operating incomes have encouraged investors to continue investing in British shopping centres. Last year, shopping centre investment volumes reached the highest level since 2016, totalling approximately £2.07 billion, according to CBRE.
UK institutional investors, real estate investment trusts, and sovereign wealth funds accounted for 70% of the activity, a notable change from recent years where “opportunistic” investors dominated.
This surge in investment highlights the renewed confidence in the stability and growth potential of shopping centres. Most investors are targeting these centres with a view to holding them long-term due to the appeal of very high-income yields and the ownership of large areas of town centre land.
For retailers, the advantages of taking space within a shopping centre include increased foot traffic, dwell time and consumer spending. There are benefits for landlords, tenants and consumers alike if investors can create a space which is inclusive and where community, entertainment, and shopping intersect.
Strategic options for property owners
UK high street property owners need an adaptable and sophisticated asset management approach as they navigate financial challenges this year.
Diversifying retail property portfolios to include value and luxury segments, will help investors weather the challenges facing mid-market retailers, spreading risk while capturing new market opportunities.
Modern retail leases are evolving away from rigid long-term agreements too. Many landlords now use hybrid rental models with a base rent plus a percentage of store sales, creating true partnerships with retailers. Shorter lease terms with break options and less restrictive alterations clauses also give retailers the desired flexibility.
When traditional retail demand falls, mixed-use conversions plug the gap, with developers transforming upper floors into apartments or offices while maintaining ground-floor retail.
Final thoughts
Despite the challenges facing high street retail, there are reasons to remain optimistic. The sector has demonstrated resilience, and the retailers and landlords who will thrive are those willing to collaborate on reimagining the high street.
For property owners, this means viewing retail assets as evolving spaces that adapt alongside consumer preferences, rather than static investment. It needs creative thinking about lease structures, property configurations and tenant mixes. Above all, it requires the support of trusted legal advisors who can guide retailers through the challenges and opportunities that exist in the retail market.
