Knight Frank’s latest Central London retail research shows that rental levels are at record highs and that some major streets have virtually no availability.
Since the downturn, one of the key trends in the London retail market has been the divergence in performance between the best streets and the more “average” locations. Over the last five years, rents for prime London locations such as Bond Street have risen by 45% – more than double the rate seen for“average” streetssuch as Edgware Road and Queensway. Elsewhere, Piccadilly is currently seen as under-rented compared with nearby major streets and offers good growth prospects, along with Crown Estate improvements on their adjoining estate.
Retailer demand for space continues to exceed supply, and many streets are seeing little or no availability. Knight Frank’s recent survey of 18 key London locations shows that vacancy rates average around 3-4%, with available units being taken extremely quickly.
The continuing influx of international retailers into London mirrors the latest upbeat tourist data, which shows 16.8million international visitors to the Capital in 2013. While international brands from the USA and Europe, such as J Crew, Victoria’s Secret, Piaget and Fendi still dominate activity, retailers from other parts of the world such as China, Russia, Australia and Brazil are increasingly prominent. Visitors from the USA and France still top the rankings in terms of numbers, while visitors from Asia, Latin America and the Middle East spend the most.
In the investment market, there has been little change over the last six months, with very strong demand being seen for a limited supply of prime assets. Asian buyers in particular are still dominating buying activity in the West End, with wealth preservation, cooling measures and low yields in their own markets being the main reasons for targeting London retail opportunities. Pricing is still rising, although the very low initial yields seen on some recent deals reflect highly reversionary rents, in addition to the potential for conversion to residential property in some cases.
Darren Yates, partner, retail research team, Knight Frank, commented: “London’s retail market continues to go from strength to strength, with a long line of retailers and restaurants seeking space and rents still under pressure in both prime and off-prime locations. Frankly, it is not surprising, especially given the recently published international visitor figures of 16.8 million in 2013, which show London to be the most visited tourist destination in the world. The 2012 Olympics has also reinforced the Capital’s global appeal as a retail destination.“
Alastair Bird, partner, retail investment, Knight Frank, commented;“We have seen continued capital growth for prime Central London retail, with Asian overseas investors leading the charge for the prime streets. In the coming months, we anticipate further inward yield shift, particularly more secondary London locations and suburbs, driven by demand from UK funds who are unable to compete with international high net worth investors”.
