Retailers are increasingly shifting towards more cost-effective formats, such as out-of-town shopping centres and food stores, as mounting business costs prompt a reassessment of operational strategies. This is according to the latest Construction Market Intelligence Q3 2025 report by independent construction and property consultancy RLB UK.
The report highlights a change in investor interest, driven by escalating business rates, National Insurance contributions, and rising labour costs, including the national minimum wage. These pressures are forcing both retailers and landlords to make strategic decisions to maintain profitability.
Julian King, National Head of Retail at RLB UK, said:
“The resilience of the retail property sector through the summer has been encouraging despite retailers and landlords facing mounting cost pressures. Rising costs across business rates, labour, and National Insurance are forcing retailers to reassess how and where they operate and we are seeing a clear pivot towards more cost-effective formats.
“The challenge ahead is the balancing act between passing cost pressures onto consumers, absorbing them internally, or driving procurement efficiencies. That equation has not yet settled. This is already feeding into a slowdown in construction orders from retailers.”
Risk of Closures and Job Losses
The report notes that, if current cost trends continue, the UK retail sector could face significant disruption. Analysts warn of possible store closures and job losses totalling up to 200,000 before the end of 2025. Operating margins are under severe pressure as retailers evaluate how to respond without eroding consumer demand or long-term viability.
Retail Parks and Shopping Centres Adapt
Retail parks remain a standout performer within the sector. According to RLB UK, strong rental returns continue to attract investor interest. Asset owners are responding by reconfiguring underperforming spaces, introducing drive-thru outlets, and using pop-up concepts to boost footfall and revenue.
Shopping centres, meanwhile, are undergoing a transformation, increasingly being repositioned as mixed-use hubs. Underutilised spaces are being repurposed for leisure, social, and healthcare uses, with some landlords also exploring residential developments where valuations permit. These changes reflect a growing emphasis on flexible and sustainable models that aim to maintain high occupancy rates and future-proof demand.
High Streets Remain in Demand – For Some
Despite overall vacancy rates holding steady between 7% and 8%, high-street locations are experiencing mixed fortunes. While many secondary and tertiary locations continue to see vacancies, prime high-street properties are still in demand, particularly from major brands. This highlights an ongoing polarisation in the retail landscape, where performance varies sharply depending on location, tenant mix, and adaptability of space.
Construction Activity Slows
The broader impact on the construction sector is also coming into focus. Retail-related construction orders are reportedly slowing, as businesses delay or scale back expansion plans amid economic uncertainty and operating cost burdens. The report suggests that this cooling in construction demand is likely to continue unless cost pressures ease or market conditions improve.
