London Retail Markets Insights Q1 2024

Retail Prices Drop Slightly  January 2024 - March 2024

In London, retail market recovery has stumbled recently. Net absorption turned negative over the past year, with -310,000 SF lost due to more retail space hitting the market than being leased. This contrasts with the robust recovery until mid-2023, driven by luxury brands upgrading stores and an influx of American visitors and major events. Although London's retail vacancy rate has risen, it remains below the national average, with limited upward pressure from new supply. 

Retail take-up in London declined steadily throughout 2023, with Q4 seeing the weakest leasing since Q2 2020. Footfall has increased as more employees return to offices, but West End pedestrian traffic remains 15% below pre-pandemic levels. The removal of tax-free shopping for international visitors has diverted luxury spending to other cities, although this policy might change. Demand remains weak outside prime locations due to rising costs and squeezed disposable incomes. Oxford Street is recovering, with high-profile store openings reducing vacancies. Other prime streets like Bond Street and Covent Garden were less affected, benefiting from smaller shop sizes and resilient international retailers. Affluent streets like King's Road in Chelsea continue to perform well, with new openings by brands like Ghost and Jigsaw. 

Retail parks are thriving, with vacancies at a four-year low due to strong demand from retailers seeking large units at lower rents. Prime shopping centres are also recovering, with retailers upgrading into bigger units and new entrants at places like Westfield London and Battersea Power Station development.

London's economy, comprising roughly a quarter of the national total, is projected to grow by 0.7% in 2023, a significant drop from the 5.3% growth recorded in 2022. This slowdown is attributed to high-interest rates and inflation, which have dampened both consumer spending and corporate decision-making. Despite this, London has outpaced the national average, buoyed by its extensive and diverse creative and business services sectors, as well as its lower reliance on consumer-driven industries. Growth in Gross Value Added (GVA) is anticipated to reach 0.7% in 2024 and an upwardly revised 1.8% in 2025, underscoring the capital's continued outperformance compared to other UK regions.

Employment figures for 2023 have been revised upwards, resulting in approximately 280,000 additional jobs, representing a growth of 4.4%. However, projections for 2024 have been tempered due to economic weakness, with employment growth expected to slow to 0.4%. The information & communication and professional, scientific & technical sectors are anticipated to drive both GVA and employment growth in the foreseeable future, with London expected to maintain its outperformance relative to the national average, although to a lesser extent than in previous years. Despite this, London's unemployment rate is forecasted to remain above the UK average.

London's tourism sector is on the path to recovery as travel restrictions ease, although international travel remains below pre-pandemic levels. Major infrastructure projects such as Heathrow's third runway and Crossrail 2 face challenges, primarily due to fiscal constraints and changing work patterns favouring remote work and online shopping.