International retailers compete for London luxury addresses
8 Feb, 2013, London
Luxury stores in London are bracing themselves for a huge increase of wealthy Chinese consumers fuelled by the boom in tourism which is expected to peak over the Chinese New Year holiday starting this weekend. According to Cushman & Wakefield, this seemingly insatiable appetite for luxury goods, coupled with London's attractiveness as a global luxury goods shopping destination, has resulted in international brands competing for the best retail space on London's prime streets Bond Street and Sloane Street with rents anticipated to hit record levels this year.
For each store that becomes available on Bond Street or Sloane Street in London's West End, there are around 10 international brands competing for it - an increase of around 20 per cent in the last year. Zone A rents, the industry measure for rent calculated by the most valuable part of the store, in central Bond Street have increased from £600 to £800 per sq ft. However, rent can be up to £1,000 per sq ft in the southern section of Bond Street - this could be even higher if a landlord could secure vacant possession and offer a shop on an open market rent.
Spending by Chinese tourists rose by 64 per cent last year and totalled £165 million in 2012 (according to recent data from retail analysts Global Blue), while estimates from The New West End Company, the trade association for Oxford Street, Regent Street and Bond Street, put the average spend of a Chinese tourist in London's West End at £1,300 per day - nearly 10 times more than a typical British customer.
Peter Mace, head of central London retail at global property consultants Cushman & Wakefield, represents many high-end luxury retailers in London's West End.
He commented: "We expect many wealthy Chinese tourists to hit the Capital this weekend for Chinese New Year. The appetite for British, and international, luxury brands from Chinese, Russians and other overseas consumers in London has never been higher as prices can be considerably cheaper than back home.
"International retailers are acutely aware of the relentless demand from consumers for luxury goods in the West End and are constantly vying for prime positions on London's top shopping destinations - I haven't seen this level of demand for many years. To put this into context, for every one store that becomes available on Bond Street or Sloane Street, we are seeing around 10 international brands fighting for it."
The latest research from property consultant Cushman & Wakefield underlines the continuing resilience of London luxury retail sector in stark contrast to the rest of the UK and anticipates that in 2013 competition will increase amongst global luxury brands looking the most coveted shopping destinations and thereby exerting upward pressure on prime rental values.
The growth in tourism from Asia and Russia is the key factor driver behind the luxury rental surge in London as is the Capital's importance and attractiveness for retailers as a gateway city to Europe and other global regions.
According to Cushman & Wakefield record levels of retail space changed hands last year as top global luxury brands competed to secure new stores or to increase the size of their existing stores.
In 2012, luxury retail deals taking place on Bond Street and Sloane Street included:
- 15 transactions totalling 95,000 sq ft of space 35,000 sq ft of additional new retailer
space: 20,000 sq ft on Bond Street and 15,000 sq ft on Sloane Street
- Key deals included US brand Tom Ford taking a new flagship 9,000 sq ft on Sloane Street and British icon Belstaff taking 30,000 sq ft on New Bond Street.
Retailers continue to upsize to meet growing demand
Peter Mace explains: "First floor office space on Bond Street and Sloane Street is around £55/£60 per sq ft compared to the street level shop floor area Zone A rents of around £650-£750 per sq ft on Sloane Street and £800-£1,000 on Bond Street. Retailers are increasingly looking to expand upwards into first floor space on these streets in order to secure valuable additional trading space but at around 10% of street level Zone A rents which is a 'win-win' solution for both landlord and tenant."
According to Cushman &Wakefield, the lack of supply of prime space will continue to push rental values up on these streets in 2013 with demand on both Bond Street and Sloane Street continuing to outstrip supply by about ten to one.
Clive Bull, in Cushman & Wakefield's capital markets team, said: "Strong rental performance of the prime West End thoroughfares continues to attract global investors seeking to benefit from not only the rental growth but the also the very attractive wealth preservation characteristics of these assets which so many people are seeking in what is still a volatile world economy."
In 2011 there were eight investment transactions on Bond Street compared with only two last year and scarcity looks set to continue through 2013.
Clive Bull continued: "2012 probably saw the last investments being traded by debt driven buyers, some of whom needed to release equity. The new breed of investor however is using equity to purchase these investments many of which are unlikely to come back to the market for many generations, if at all."
The research suggests that we will continue to see many luxury brands which have been unable to secure the highly sought after space on these super luxury streets choose instead, to locate just off Bond Street and Sloane Street out of necessity. This in turn has lead to the emergence of new luxury enclaves such as Mount Street, Brompton Cross, St James' Estate, Dover Street and Albemarle Street.
Italian, French and Swiss brands will continue to dominate London luxury in 2013
In 2012, around a third (32%) of the space transacted on Bond Street and Sloane Street two streets this year was taken by Italian designers, accounting for five of the 15 deals. After the Italians, Swiss brands accounted for the second largest percentage of retail space transacted so far this year (17%) and three of the 15 deals on Bond Street and Sloane Street. French designers accounted for two deals (6% ) of retail space transacted) on the two streets. Up market brand Marithé François Girbaud - a new entrant to the UK - signed at 107 New Bond Street in February. The other French luxury designer was Tara Jarmon, which took assignment of 119 New Bond Street for its first standalone store in the UK.
Cushman & Wakefield also expects another key trend in 2013 to be a growth in the number of luxury watchmakers targeting London's prime luxury streets. Last year, two watch brands Breitling and Vacheron Constantin took 2,500 sq ft and 800 sq ft respectively on Bond Street.
Peter Mace continued: "Traditionally we have seen luxury watchmakers trade through department stores and multi brand retailers, but increasingly they have started to appreciate the marketing power of having a standalone store in the right location and we are currently aware of 10-15 such brands eager to secure a position on either Bond Street or Sloane Street."
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