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James Bramble, Director in JLL’s Retail Investment team examines the London retail market
London, 10th October 2016 - Three months on from the result of the EU Referendum and London retail still remains firmly in the sights of global occupiers and investors.While we witnessed short term reaction to global uncertainty in the weeks post the EU referendum result, the indicators for long term rental growth and resilience in London remain positive. At the end of July we witnessed some properties being sold rapidly with the retail funds also requiring a rebalancing of liquidity, however pricing in London has remained stable at pre-referendum levels.Indeed, London is still regarded as the No.1 retailing and tourist destination in the world and the weakening Pound is proving a boost for sales for luxury retailers. This is against a back drop of competing international luxury retail destinations witnessing a dip in sales due to significantly lower tourist activity.Virtually all London Retail Zone A’s are at record levels - in the summer Hublot pre-let 14 New Bond Street, a rent of £1.6 million per annum reflecting £2,224 Zone A per sq ft.The London retail property market remains a global attraction for foreign investment, aided by the transparency of the UK legal & tax system and the transaction process.This has been evidenced by the fact that some of the largest transactions in the market have occurred since the Referendum result. For instance, British Land sold the Oxford Street Debenhams department store in July for £400m to a private European retailing dynasty. Norges Bank Investment Management, in what has been described as near record breaking speed, purchased Boots’ flagship store at Sedley Place, 335-361 Oxford Street, within five days for a price of £124 million - both transactions demonstrating the depth and velocity of capital in the investor market. Most recently in September, Oxford Properties and the luxury retailing group Richemont have exchanged contracts to buy Mulberry’s flagship store on New Bond Street from Aberdeen Asset Management for £198m.As we enter into 2017 and the Business Rates revaluation comes into force in April, we expect to see a further rebalancing of the level of premiums paid in the market, as opposed to a deflation in rental levels achieved. The prospect of Crossrail opening in 2018 and the benefits for shoppers and retailers alike will undoubtedly compound the strength of retailing in London which will deliver further rental growth.Of course we are still waiting for further clarity about what a new agreement with the EU will look like and whether it will be a ‘hard’ or a ‘soft’ Brexit. However, it’s clear that the attributes of the UK capital city will continue to ensure London is a magnet for international capital and tourists and business visitors alike. To read more about why London is the most attractive city in the world for international retailers, please register to receive our recent report, Destination Retail 2016.
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