Prime London retail volumes cool, but prices stay healthy
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There are few more historic and prestigious shopping streets in the world than New Bond Street. A fashionable retail location dating back to the 18th century, the street boasts a collection of high-end fashion boutiques and luxury brand stores, now known to be one of the most expensive retail thoroughfares globally.
When 143 New Bond Street came to market in 2015, the vendor quoted a price of £30 million. The 913 square metre mixed-use building combines retail, gallery, office and residential accommodation. Previously home to Ralph Lauren, the retail accommodation was taken over by designer brand Chloé, as part of the Richemont Group’s luxury label portfolio.
The property – which has just under 40 years remaining on the lease and a fixed ground rent of £3,350 per annum – was once again put up for sale in July at a quoted price in excess of £47.25 million (reflecting a 4.00 percent net initial yield). However, while negotiations were undertaken, the vendor the private investor subsequently withdrew the property from the market, believing the value of their asset to be worth more than the quoting price.
Similar sales stories have been playing out across central London’s retail market. Prime London retail has enjoyed a succession of high volume trading years, with a five-year average of £2.4 billion in transactions, and improved year-on-year pricing. However, transaction volumes in 2017 (£1.67 billion) were down a quarter on the 2016 trading figures, and were held up by some substantial special purchaser off-market transactions.
“Last year we appeared to reach an impasse,” notes James Bramble, Director within Central London Retail team at JLL. “Vendors held very high pricing aspirations and faced little external pressure to sell, which led to suppressed liquidity in the market.”
The combination of vendors’ reluctance to sell, along with a robust demand outlook – notably the significant backdrop of global equity seeking prime central London assets (70 percent of investment last year originated from overseas) – has helped support some of the highest prices seen in the marketplace.
“For the time being, investor sentiment has stayed buoyant,” says Bramble. “Investors recognise they are holding some of the best real estate assets in the world, with strong and resilient fundamentals encouraging them to hold stock.”
The attractions remain strong and varied. London is a global safe haven, with a robust and stable legal structure, landlord-favourable leases, and strong economic and leasing fundamentals. Meanwhile, the opening of the Elizabeth line in December 2018, and commencement of the pedestrianisation of Oxford Street will reinforce London as the number one destination for retailing and investment.
Volumes back on the rise
“Nevertheless, pricing expectations will re-align once vendors are faced with the need to liquidate assets, as witnessed in the case of the Burlington Arcade,” notes Bramble. Realistic marketing prices will capture the attention of motivated buyers, with overseas private wealth and institutional investors expected to remain the dominant source of capital. An influx of Japanese and Korean capital in particular is anticipated in 2018.
“In the next 24 months – with a change in the Bank of England interest rate expected at some point in 2018/2019, along with further clarity on Brexit – we may once again see an increase in liquidity in the marketplace,” says Bramble. “And while we don’t expect volumes to rise above £3 billion, all it takes is a few larger transactions for them to be back above the five-year average.”