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Strong fundamentals support necessity retail

16 Jan Strong fundamentals support necessity retail

Posted at 08:03h in Insights by

In 2025, the world economy faced extraordinary challenges, including tariffs, tightened labor markets and geopolitical tensions, combined with uncertainty over inflation, interest rates and fiscal sustainability. But despite these shocks, European real estate has remained resilient, with most markets stabilising or exceeding expectations as fundamentals and investor sentiment improve. 

Looking ahead to 2026, the tone is shifting from resilience to optimism according to Cushman & Wakefield, saying that if 2025 was a test of resilience, then 2026 has the potential to reward it. 

For more than a decade, a key area of specialism for Mitiska REIM has been necessity retail, comprising retail parks and convenience centers, and in this latest blog we examine the performance drivers of this resilient sector, and why we believe the fundamentals are in place for it to outperform in the coming years. 

The renaissance of retail 

European retail markets are at the beginning of a new cycle, according to research by Union Investment. Falling vacancy rates, rental growth and a limited pipeline of new construction are pointing to a further recovery in the coming year.

Despite a tight labor market and varying national developments, consumer confidence and retail sentiment continue to rise, which Union Investment says is consolidating Europe’s position as the most attractive retail market in the world

Many retailers are now in expansion mode, and we have been seeing this across our European portfolio, both in supermarket tenants such as Lidl, Kaufland, Aldi, Delhaize, Jumbo, Mercadona and Billa, and value retailers like Action, Tedi, Jysk and KiK planning to roll out hundreds of new stores across Europe in the coming years. 

Value retail takes center stage 

Within retail, discounters and value-led formats are outperforming, says Savills, as elevated inflation, higher interest rates and cautious sentiment post pandemic have expanded the market for value and low-cost retailers. 

Once seen as a compromise, value retail has been rebranded as a conscious, even aspirational choice according to Savills, with brands having now built strong value perceptions amongst consumers. This dissipation of stigma is evident in the sales data – from 2019 to 2024, value retail sales grew by 36%, significantly outpacing the 21% growth in the mass market.   

Retail parks and convenience centers are very well placed to benefit from this shift in consumer behavior. More value-seeking and time-pressed shoppers are increasingly attracted to the necessity retail proposition offered by retail parks and convenience centers, which combine convenience, essential needs and value for money. Retailers in turn benefit from the accessible locations, affordable buildings, flexible design and sustainable solutions offered by this segment of the market. 

Savills predicts that value retail’s importance will continue to grow, with discount and value-led formats continuing to perform strongly as affordability becomes a lasting priority for the growing European consumer base. 

Falling vacancy and rising rents 

Research by Savills shows that across Europe, retail vacancy has continued to narrow over the past year, especially for prime assets. Savills highlights retail parks and convenience centers as the most resilient formats, having emerged as clear outperformers.  

Vacancy rates have fallen further in retail parks and convenience centers which Savills attributes to a healthy mix of grocery anchors, value and discount operators, home improvement chains and bulky goods retailers. The sector continues to benefit from convenient locations, easy access with free parking, and the integration of stores into omnichannel fulfilment networks.

As a result, prime rents continue to rise, fueled by a limited pipeline of new projects and strong competition amongst retailers for the best locations and schemes. Retail rents across Europe have now risen to higher levels than anywhere in the world, recording the strongest growth last year based on an analysis by CBRE.  

Retail parks and convenience centers have led the way, with rents now 14% higher than they were in 2018 according to Cushman & Wakefield, with shopping centers returning to 2018 levels, and high street stores still 4% below. 

Increasing investor demand for retail assets 

Investor demand for retail assets is rising, driven by growing confidence in the sector. Cushman & Wakefield research shows volumes continuing to edge up – retail now accounts for about 16% of total European investment volumes, up from 12% in 2021, with volumes expected to increase further in 2026. Retail parks and convenience centers remain the leading segment according to Savills, representing around 40% of total retail investment at the end of last year.  

JLL predicts continued investor focus on retail parks, with strong interest in those grocery-anchored by a supermarket. Modest yield compression is expected for prime assets in 2026 as investors target high-yielding opportunities. JLL research highlights retail parks as maintaining high and stable yields compared to other segments and well placed for attractive returns as interest rates decline. 

Falling vacancy rates, renewed rental growth and a very limited pipeline of new developments are all strengthening income prospects, drawing in a wider range of investors. Savills says this more supportive environment is encouraging larger assets and portfolio transactions to come to market, which in turn, is broadening participation from institutional and international buyers. 

A fertile ground for value-add investors 

New retail development has slowed dramatically, according to Savills, with a shift now to repositioning assets, modernizing facilities, enhancing sustainability features or repurposing assets for alternative uses.  

This is creating significant opportunities for specialist value-add investors like Mitiska REIM. A key investment situation we look for is refurbishing older, out-of-favor assets to reposition them to become go-to retail destinations. 

Following successful refurbishment projects across Europe, Mitiska REIM is currently transforming seven former Cora hypermarkets and galleries in Belgium into modern, successful and sustainable grocery-anchored retail centers, designed to meet the needs of value seeking and time-pressed shoppers, tenants and local communities. Following the completion of this acquisition in September last year, this transformation program is scheduled for completion in August this year. 

As we look ahead to 2026, we think necessity retail remains well positioned, including those investments that require capex and hands-on asset management, which value-add strategies can capitalize on. Retail enters this year supported by strong fundamentals, with the proposition offered by retail parks and convenience centers in a very healthy position to remain a top choice for shoppers, retailers and investors. 

 

Links to market reports referenced in this blog: 

 

Past performance is no guarantee of future results. Mitiska REIM is a licensed alternative investment fund manager under the Belgian 2014 AIFM Law. Mitiska REIM acts in its capacity as fund manager (AIFM) of MEREP Light Industrial, MEREP 3, M3CC, M3GC and FRP, and fund advisor of FRI and FRI 2. 

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