European grocery investment surpassed €6 billion in 2025, posting a 16% year-on-year increase and marking the sector’s first meaningful uptick since 2020, according to new analysis from global real estate services group Savills. The recovery was driven primarily by a 35% surge in portfolio transaction volumes, signalling renewed institutional confidence in food retail as a defensive asset class.
At the same time, merger and acquisition activity across the grocery sector expanded by approximately 30% compared to 2020 levels — a development Savills attributes to retailers responding to prolonged profitability compression, intensifying price competition, and the imperative to strengthen balance sheets.
FIVE YEARS OF MARGIN EROSION
The context for this strategic pivot is a sustained period of financial strain. Over the past five years, many grocery operators absorbed inflationary pressures well above those typical of a standard economic cycle, with material consequences for margins. That environment, compounded by shifting consumer behaviour and the rapid evolution of retail formats, has prompted operators across Europe to fundamentally reassess their strategies — spanning network diversification, format innovation, and operational efficiency programmes.
A YEAR DEFINED BY CONSOLIDATION
2025 proved to be a landmark year for structural change. Large-scale deals, strategic acquisitions, and cross-border disposals collectively reshaped a market that is growing increasingly concentrated. Sale-and-leaseback transactions were particularly prominent, accounting for nearly 21% of total grocery investment — the highest share recorded in 13 years — underscoring the sector’s need to unlock liquidity and reinforce positions in core markets.
Discount retailers continued to act as the primary transformative force within the European grocery landscape. Over the past decade, discounters have posted a compound annual revenue growth rate (CAGR) of 5.2%, meaningfully outpacing traditional supermarkets at 3.2%. Their accelerating expansion into urban areas is redrawing the competitive map across the continent.
STRATEGIC RATIONALISATION OF RETAIL NETWORKS
Francesca Cattagni, Head of Retail Agency at Savills Italia, offered a perspective on the structural forces at play. “A strategic rationalisation of retail networks is underway, driven by shifting consumption patterns and emerging trends,” she said. “We are seeing growth in proximity supermarkets and discounters experimenting with smaller, neighbourhood-oriented formats. Consumers are placing greater emphasis on quality, health, and sustainability — but price sensitivity remains acute. Brand loyalty is declining in favour of best value-for-money propositions.”
Despite broader consumer caution, Savills anticipates a resumption of market activity, led predominantly by large portfolio transactions. The firm expects consolidation to continue through 2026, as operators press ahead with network rationalisation, capital reallocation, and long-term competitive repositioning.
YIELD COMPRESSION ON THE HORIZON
As liquidity conditions gradually improve, Savills is forecasting yield compression over the next 12 months, supported by renewed interest from international capital — notably US investors targeting income-producing assets underpinned by long-term lease structures.
Marco Montosi, Head of Investment at Savills Italia, highlighted the appeal and the specific constraints of the Italian market. “The resilience of cash flows and the financial strength of the leading large-scale grocery operators confirm that, even in Italy, grocery remains one of the most defensive and sought-after asset classes for investors focused on long-term stability,” he said. “However, unlike other European markets, the Italian context is characterized by a marked scarcity of investable product, set against a strong appetite for real estate fundamentals and the operational quality of grocery tenants.”
The combination of recovering transaction volumes, structural retail transformation, and growing cross-border investor interest positions European grocery real estate as one of the more compelling sectors heading into the second half of the decade — despite the operational and macroeconomic headwinds that continue to define the broader retail environment.