London Retail Market Insights Q4 2024

The London retail market is showing signs of recovery despite ongoing challenges. Leasing activity reached a two-year high in Q3 2024, remaining approximately 20% below pre-pandemic levels. Vacancy rates in the city have stabilised below the national average, supported by a reduction in new retail space development and the increasing conversion of retail properties into other uses.

Oxford Street has become a focal point for the market's revival, with notable openings such as IKEA, HMV, and Under Armour. Footfall around Tottenham Court Road has increased by 19%, driven by the opening of the Elizabeth Line, which has revitalised the area. Bond Street has experienced a surge in luxury retail activity, with brands like Yves Saint Laurent contributing to rents surpassing pre-pandemic levels. King's Road and Chelsea have been particularly resilient, with zero vacancies and steady rents supported by affluent local shoppers.

Consumer confidence rose to a two-and-a-half-year high in the summer of 2024, driven by decreasing inflation and rising real wages. Retail sales are projected to grow by 0.9% in 2024, recovering from a 1.9% contraction in 2023, with an expected acceleration to 2.1% in 2025.

Investment volumes in the retail market remain subdued, with rolling annual volumes at £1.5 billion, significantly below the ten-year average of £3.1 billion. However, there have been notable transactions, including Blackstone’s £227 million acquisition on Bond Street, which marked a turning point in the market. Other key transactions include high-profile deals in the King’s Road and Chelsea, where local demand has ensured the area’s continued strength.

Despite the challenges, London's retail market demonstrates resilience in prime locations and optimism for the future, particularly as economic conditions improve and interest rates are expected to fall.

London’s retail investment market remains subdued, with rolling annual volumes of £1.5 billion near historic lows and well below the ten-year average of £3.1 billion. However, activity has picked up in recent months, a trend that is likely to persist as improving economic conditions, rising consumer confidence, and anticipated reductions in interest rates drive greater investor interest. The upward pressure on yields seen over the past two years is expected to ease in response.

Major transactions on Bond Street have been a key driver of investment activity. In April 2024, Blackstone acquired 130-134 New Bond Street for £227 million in a landmark deal. The mixed-use property, which sold at a 3.5% yield and £8,234 per square foot, was previously purchased for £197 million in 2014. Blackstone appears to be capitalising on a rare opportunity to establish a luxury flagship store, in line with the area’s growing appeal among high-end retailers.

Pricing on London’s prime shopping streets is strengthening, reflecting their reputation as secure investments during uncertain times. Retail rents in these locations are showing signs of recovery. For instance, in May 2024, Swiss luxury retailer Richemont acquired 178 New Bond Street for £82 million at a 2.3% yield. This yield was lower than those seen in comparable transactions on Old Bond Street the previous year and reflects investor confidence in significant rental growth potential.

King’s Road in Chelsea has also shown pricing resilience, bolstered by its strong occupier market. In 2023, Cadogan Estates acquired properties at 36-42 and 52 King’s Road for £38.5 million, reflecting a 3.7% net initial yield and a reversionary yield of 4.2%.

Large-scale sales have been limited in recent quarters, with most transactions occurring at significant discounts to previous sale prices or involving redevelopment opportunities. For instance, in 2023, Lazari Investments purchased the iconic Fenwick department store on New Bond Street for £430 million, intending to undertake a mixed-use redevelopment that will substantially reduce retail space. Similarly, Aviva’s acquisition of a 50% stake in the Bentall Centre in Kingston upon Thames valued the property at £115 million—less than 60% of its 2015 valuation of £190 million.

In less affluent areas, the decline in retail property values has been even steeper. The Pavilions Shopping Centre in Uxbridge, for example, was sold in December 2023 for £19 million, a fraction of its £60 million sale price a decade earlier, reflecting a 14.5% yield.

Lower property prices and relaxed planning regulations are expected to drive an increase in retail repositioning projects. This trend, which gained momentum before the market downturn, includes examples such as Amazon’s acquisition of Pentavia Retail Park for conversion into urban logistics and Rockwell and Cerberus’s redevelopment of Hurlingham Retail Park into a mixed-use waterfront scheme. Additionally, several shopping centres have been repurposed as part of residential-led redevelopment projects.

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