Real estate investment strategy has been dominated in recent years by a singular mantra: ‘beds and sheds’. Investors have relentlessly pursued residential assets and industrial logistics facilities, driven by demographic shifts and the explosive growth of e-commerce. While these sectors remain fundamentally sound, the sheer volume of capital chasing them has kept yields low. For investors seeking attractive income returns, particularly those looking for a strategic entry point following a market correction, it is time to look beyond the warehouse and the apartment block. It is time to reconsider the ‘floors and stores’ of the office and retail sectors.
Both the office and retail markets endured a punishing period during and immediately after the pandemic. Retail faced the existential threat of online shopping lockdowns, while the office sector grappled with the sudden, structural shift towards remote working. Valuations plummeted and investor sentiment turned deeply negative. However, this distress has created a compelling opportunity. Asset values in these sectors have undergone a severe repricing, creating a new baseline where yields are now highly attractive compared to other asset classes.
In the retail sector, the much-anticipated demise of the physical store has not materialised. Instead, retail has proven remarkably resilient. According to AEW research, European prime retail total returns are anticipated to average 8.2% annually between 2025 and 2029. Crucially, retail offers a higher current income yield compared to the average of the non-retail sectors. Furthermore, in the US, Cushman & Wakefield notes that retail is leading the price recovery, supported by a near-historic low vacancy rate and availability at just 4.8%, the lowest on record. With retail construction starting at multi-decade lows, existing prime assets face minimal competition from new supply, driving rental growth.
A similar dynamic is unfolding in the office sector, driven by a pronounced flight to quality. While secondary and tertiary office buildings continue to struggle with high vacancy rates, demand for best-in-class, modern and highly sustainable workspaces is surging. Companies are using premium real estate as a tool to attract talent back to the office and meet stringent corporate sustainability targets.
This demand for quality is colliding with a rapidly shrinking supply pipeline. High construction costs and elevated financing rates have severely curtailed new development. Cushman & Wakefield projects a supply shortfall of 8.9 million square meters of Grade A office space across Europe between 2026 and 2028. As of early 2026, Grade A office vacancy across key European markets stood at just 3.3%, falling to 2.8% within core locations. This acute scarcity of premium space provides a robust foundation for rental growth and capital appreciation for investors holding or repositioning the right assets.
Middle Eastern capital, known for its long-term perspective and ability to deploy capital counter-cyclically, has already recognized this shift and is actively acquiring prime floors and stores across global gateway cities.
In the retail space, a notable transaction was the Saudi Public Investment Fund acquiring a 40% stake in the iconic Selfridges department store group in 2024. The deal, partnered with Thailand’s Central Group, includes the flagship Oxford Street store in London, demonstrating a clear conviction in the enduring value of experiential, high-end physical retail.
In the office sector, the Qatar Investment Authority has continued to consolidate its massive presence in Manhattan, maintaining its 44% stake in the US$8.6 billion Manhattan West development alongside Brookfield. Furthermore, Saudi Arabia’s Olayan Group has demonstrated the value of repositioning older assets, having successfully renovated the landmark 550 Madison Avenue in New York into a Leadership in Energy and Environmental Design (LEED)-Platinum trophy tower that last year approached 96% occupancy.
For capital seeking high yields, constrained supply and the opportunity to buy premium assets at a cyclical discount, the office and retail sectors offer a compelling narrative. By focusing on high-quality, sustainable office floors and experiential, well-located retail stores, investors can secure robust income streams and position themselves for significant capital growth as these foundational sectors continue their recovery.
Written by Philip Churchill, first published in Islamic Finance News Volume 23, Issue 33 dated 19th August 2026.