Fashion Retail's Dominance in European Retail Floorspace in H1 2025: Unlocking Undervalued Real Estate Opportunities

Fashion retail continues to anchor Europe's commercial real estate landscape, accounting for 37% of all leased retail floorspace in H1 2025, according to Cushman & Wakefield's European Retail Radar report. This dominance is driven by mass-market brands like Zara, Mango, and Jack & Jones, which secured nearly 70% of total leased space, while luxury retailers saw a 50% year-on-year increase in lettings, particularly in the UK and Italy, the report found. As consumer confidence stabilizes amid falling inflation and interest rates, the sector's resilience has created a unique window for investors to identify undervalued assets in fashion-centric commercial hubs across Southern and Central Europe.

The Drivers of Fashion Retail's Resilience

The surge in fashion retail's occupancy rates is closely tied to tourism and macroeconomic trends. Long-haul traveler arrivals are projected to surpass pre-pandemic levels, fueling demand for prime retail locations in cities like Madrid, Rome, and Barcelona, the report notes. High streets recorded a 4% year-on-year rent increase, outpacing retail parks and shopping centers, as brands compete for visibility in tourist-heavy areas, the same report showed. Meanwhile, out-of-town retail and shopping centers have emerged as undervalued alternatives, with the latter attracting €7.2 billion in investment in Q1 2025-a 81% year-on-year surge, according to the BNP Paribas report. These formats benefit from lower entry prices and risk premiums, making them attractive for investors seeking stable returns in a fragmented market, BNP Paribas adds.

Southern and Central Europe: A Goldmine for Undervalued Assets

Southern Europe, particularly Spain and Italy, has become a focal point for fashion retail real estate. In Iberia, shopping centers accounted for 54% of retail investment in Q1 2025, with major deals in cities like Valencia and Seville, according to BNP Paribas. These markets offer high occupancy rates (often exceeding 95%) and yields of up to 10.7% annually, driven by necessity retail and experiential formats, according to a CBRE report. Similarly, Central European cities like Kraków and Warsaw are gaining traction. Kraków's Designer Outlet, for instance, has become a regional draw, blending fashion retail with cultural tourism, according to Cushman & Wakefield's Poland MarketBeat. Warsaw's real estate market, meanwhile, offers rental yields of 6.49% for three-bedroom apartments, supported by a booming tech sector and government incentives, a EuroNews roundup reports.

Portugal's Porto and Hungary's Budapest also stand out as undervalued hubs. Porto's growing tourism industry and lower property prices make it an ideal entry point for fashion retailers seeking cost-effective prime locations, according to a French Chateau analysis. Budapest, with its historical appeal and rising expat population, is seeing renewed interest in high-street retail, particularly for luxury brands, EuroNews also notes. These cities exemplify the broader trend of investors diversifying away from overpriced Western European markets toward Southern and Central Europe's untapped potential.

Future Outlook and Strategic Considerations

The European retail sector's outlook remains cautiously optimistic. CBRE forecasts that necessity retail and malls will outperform other sectors, with prime rents stabilizing in core markets. For investors, the key lies in targeting assets with strong tenant diversity and adaptive reuse potential. Outlet centers, for example, are evolving into experience-driven destinations, integrating food and beverage options and pop-up activations to attract high-value shoppers, according to a Savills report. In France, factory outlet centers (FOCs) now generate €130 per visit on average, underscoring the sector's profitability, the Savills analysis adds.

However, risks persist. Political uncertainty, energy price volatility, and potential U.S. tariffs could dampen consumer confidence. Investors must prioritize locations with resilient tourism sectors and diversified tenant bases to mitigate these risks.

Conclusion

Fashion retail's dominance in European retail floorspace underscores a strategic opportunity for investors to capitalize on undervalued real estate in Southern and Central Europe. By focusing on cities like Porto, Valencia, and Kraków, and leveraging the growth of shopping centers and out-of-town retail, investors can secure high-yield assets in a sector poised for long-term stability. As the ECB's rate-holding stance and improving inflation trends continue to support consumer spending, the time to act is now.