London Retail Market Insights Q3 2024

Demand for retail space in London is gradually improving, with brighter prospects for the second half of 2024 and beyond. The wave of store closures that characterised last year has subsided, leasing activity has increased, and the consumer environment is showing signs of recovery. Central London’s prime retail destinations have regained much of their pre-pandemic vibrancy, and the city’s retail vacancy rate has stabilised at a level below the national average.

Recent leasing trends and confidence indicators suggest a positive outlook for the coming months. Retail take-up in the first half of 2024 was up 32% compared to the second half of 2023, with the second quarter of 2024 being the busiest in over a year. While leasing activity remains around 20% below pre-pandemic levels, retailers are feeling more optimistic as economic conditions improve. Consumer confidence reached a two-and-a-half-year high in June 2024, buoyed by easing inflation and rising real wages. Oxford Economics forecasts that retail sales in London will grow by 0.5% this year, following a 1.6% decline in 2023, with growth expected to accelerate to 2.4% in 2025.

Some areas of the market are performing particularly well. Bond Street has seen an influx of new luxury retailers, while Oxford Street, especially its eastern end, is undergoing a strong revival. Prime rents on these streets have increased in recent quarters after significant losses during the pandemic. Affluent residential areas such as Chelsea and Knightsbridge are thriving, and retail parks are proving to be a strong segment outside central London, with availability in this area falling to a three-year low in the second quarter of 2024.

On the supply side, there will be little new retail space constructed in the coming years, which should help maintain a low vacancy rate. The trend of repurposing retail space for other uses is also expected to accelerate. Several department stores on Oxford Street are being partially converted into offices, and planning relaxations are likely to lead to the faster removal of redundant retail spaces outside the city centre.

However, there are some challenges to this optimistic picture. While footfall in the West End is returning to normal and rose by 5% last year, it still lags behind pre-pandemic levels. The abolition of tax-free shopping for international tourists has shifted much of the luxury spending to Paris and Milan, and plans to reinstate the scheme appear less likely under a Labour government. Meanwhile, the cost-of-living squeeze, though easing, continues to constrain consumer spending in areas outside prime locations, and the recent rise in the national living wage is squeezing retailer profit margins. Store closures by brands like Boots, the Body Shop, and Carpetright are likely to continue, creating gaps on high streets.

The investment market remains quiet, with annual volumes of £1.8 billion significantly below the 10-year average of £3.1 billion. Pricing has softened in response, although the 2.2% yield paid for a property on New Bond Street in May 2024 highlights the resilience of top-tier locations. Blackstone’s £227 million acquisition on the same street a month earlier has been viewed as a potential turning point. Supermarkets remain a relatively popular investment beyond central London.

London’s retail investment market remains subdued, with annual volumes at £1.8 billion, well below the 10-year average of £3.1 billion. However, activity has picked up in recent months, spurred by improving economic conditions, better consumer sentiment, and the prospect of lower interest rates. Yield increases over the past two years are expected to level off.

Key transactions on Bond Street have supported investment volumes. In April 2024, Blackstone’s £227 million purchase of 130-134 New Bond Street marked a significant market move, reflecting a 3.5% yield. Luxury retailer Richemont followed in May, acquiring 178 New Bond Street at a 2.2% yield. These low yields reflect investor expectations for future rental growth, especially on Bond Street, a stable destination for capital during uncertain times.

Elsewhere, King’s Road in Chelsea has also shown pricing resilience, with Cadogan Estates buying properties at a 3.7% yield. However, fewer large sales have closed recently, with many deals involving sharp discounts or redevelopment opportunities. Notable transactions include Lazari Investments’ £430 million acquisition of the Fenwick department store for mixed-use redevelopment and Aviva’s £57.5 million purchase of a 50% stake in Kingston’s Bentall Centre, which has seen significant value declines.

Falling prices and planning relaxations are expected to drive more retail repositioning projects in the coming years, building on prior trends like Amazon’s conversion of Pentavia Retail Park into urban logistics and several residential-led shopping centre redevelopments.

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