Retail Insights Q4 2023 – Q1 2024 London

London's retail investment has decelerated once again in recent months, following a strong start in 2023. Rolling annual volumes amounting to £1.7 billion are nearing a historical low, significantly below the 10-year average of £3.2 billion. Concerns have emerged regarding retail demand due to weak consumer spending and escalating business costs. Moreover, the rise in interest rates has dampened investor demand and led to a decline in pricing. While the market is expected to remain subdued in the short term, supermarkets in outer London are likely to maintain their appeal.

Several significant transactions on Bond Street buoyed investment volumes in 2023. For instance, in February, Chanel sold 27 Old Bond Street, an office block housing the luxury fashion house and an Alexander McQueen retail showroom, to a private North American investor for £140 million at an attractive 2.6% yield. Subsequently, Kering sold 32-33 Old Bond Street to the Swatch Group in May at a slightly higher 3.2% yield. These deals highlight the stability of pricing on London's premier shopping street, often viewed as a safe haven for capital during uncertain times.

Yields on Bond Street remain comparable to the 3% yield Reuben Brothers agreed to pay for the Emporio Armani store at 51-52 New Bond Street during the pandemic. However, they are unlikely to revert to the approximately 2% levels witnessed before the pandemic. Similarly, King's Road in Chelsea has shown resilience in pricing, with Cadogan Estates purchasing properties there at a keen 3.7% net initial yield.

Despite fewer large sales in recent quarters, those that have concluded often involved sharp discounts to prior sale prices or had redevelopment potential. Notable examples include Lazari Investments' acquisition of the Fenwick department store on New Bond Street for £430 million, intended for mixed-use redevelopment. Additionally, Aviva's purchase of a 50% stake in the Bentall Centre in Kingston upon Thames at a valuation substantially lower than its 2015 sale price exemplifies this trend.

Falling prices and relaxed planning regulations are anticipated to drive an increase in retail repositioning projects in the coming years. Prior to the market downturn, such deals were gaining momentum, with Amazon's acquisition of Pentavia Retail Park for urban logistics conversion and Rockwell and Cerberus' purchase of Hurlingham Retail Park for a mixed-use waterfront scheme being notable examples. Additionally, several shopping centres changed hands in residential-led redevelopment endeavours.