LONDON CALLING RETAILERS
According to Ciara Horgan, Senior Investment Surveyor with Knight Frank Ireland London has remained remarkably resilient during the downturn and its economy is set to outperform the rest of the UK in the short to medium term.
London will always be an international city, but the upcoming 2012 Olympics will give it a further boost by attracting increasing foreign investment, strengthening the already booming tourist trade and giving the recovering economy a good helping hand.
The Central London retail occupier market is very active and showing no signs of slowing down with record rental levels being achieved on all major thoroughfares.
Prime West End streets are seeing strong demand for limited good quality space and this is creating an overflow onto more secondary adjacent locations.
Bond Street in particular has seen retail rents surge by 20% in 12 months to a Zone A of £950, although a recent letting to the Swiss jewellery retailer Piaget at 169 New Bond Street has reportedly exceeded this figure. These Zone A rents are not confined to the ‘jewellery quarter’ of Bond St; rents for retailers further north on the street are reaching £670, with recent deals to Missoni and Coach.
The development of Crossrail will connect Greater London directly by rail from West to East in record time, running through the heart of the city, and will be completed in 2018. Crossrail will boost retail footfall even further, with an anticipated 220,000 passengers daily at the only Mayfair Crossrail station, against a current 125,000 passengers exiting the Oxford Circus tube.
Great Portland Estates are redeveloping their Hanover Square Estate with a plan to provide a ‘new best in class’ retail provision on New Bond Street, incorporating a series of new high quality shop fronts. Their scheme proposals aim to improve the overall quality of north New Bond Street, which has always been the poor relation compared to the extremely affluent Old Bond St.
The vast majority of retailer demand is currently coming from European markets with French, Italian, German and Spanish retailers clambering for space.
US retailers are also pushing into the London market, with well known names such as Victoria’s Secrets and Coach, opening large stores on New Bond Street. Faberge, the upmarket jeweller which last had a London outlet in 1917, is reportedly on the look out for a flagship store in Central London.
Potential market investors cannot help but get excited by the level of retail rental growth and preceded demand by retailers to retain space at a premium.
Low interest rates, a weaker sterling and strong rental forecasts are making for a perfect trophy investment market.
However, a lack of stock remains as always the main problem in a market such as this. The Dolce & Gabbana unit on Old Bond Street was recently sold by Lord Alan Sugar’s property vehicle, Amsprop, showing a net initial yield of 2.80%. BA Pension Fund sold their Missoni unit on New Bond Street for circa 3.00% NIY and the Cartier unit on Old Bond Street is currently being marketed at 3.10% NIY, but expected to achieve a far stronger yield.
Our recommendations to our clients are also to consider adjacent streets to the major West End thoroughfares with more palatable pricing when considering a potential investment.
Crossrail and private estates redevelopment are creating further submarkets away from the dazzling trophy streets. This is where future projected yield compression and rental increases will prove their worth to a savvy investor.
ciara.horgan@ie.knightfrank.com