There Was Only 1 Leasing Deal On Oxford Street Last Year
It is Britain’s most famous shopping street, a tourist mecca, and traditionally where big retailers who want a presence in London put flagship stores. But there was only one major retail leasing deal on Oxford Street announced last year.
TK Maxx taking over a 30K SF store from financially troubled retailer New Look was an eye-catching deal. And there was another smaller deal for shirtmaker T.M. Lewin to take a unit in the block formerly occupied by department store BHS.
But on the whole, one large deal on the iconic London shopping strip is a cyclical low, and shows how even the most-well known destinations in retail — it was London’s busiest shopping street in 2017 with 194 million visitors, according to Savills — are being forced to adapt by changes in consumer behaviour.
Existing retailers are looking to exit stores, and the flow of new retailers looking for space on the street has slowed to a trickle, meaning availability is high for a destination where retailers previously had to fight for space. As a result, rents will likely fall from the records set in 2017.
Oxford Street is currently the home of flagships for many department stores, several of whom are facing financial issues, calling their future into question. And there is uncertainty on the local political front, which is likely to hinder efforts to change.
The street will evolve and retain its status, and big retailers and developers will use it to drive innovation in their businesses. But currently, Oxford Street is going through an unusually difficult period of adaptation.
“I think Oxford Street is going through a period of flux,” Kenningham Retail founder David Kenningahm said. “If you look at the western end of Oxford Street, then availability is at the highest level for some time, probably since the early 1990s.”
BNP Paribas Real Estate put the street’s vacancy rate at 6.2% in spring last year, but that number will rise with the closure of large stores like HMV’s flagship unit.
As well as announced closures, there is also a lot of space informally available to lease from retailers looking to exit leases if they can do so without allocating leases at a big discount to what they are currently paying. Big international retailers are looking to reduce the number of stores they have on the street.
“On Oxford Street, historically brands could have up to six stores," Savills Head of London and International Retail Anthony Selwyn said. "Going forwards it is more likely to be two or three with more focus on providing customers with an exciting experience conceptionally.”
As well as fewer stores, retailers will also want newer stores, leading to a preference for moving into the new developments being undertaken by REITs like Great Portland Estates and Derwent, or traditional property companies like Grosvenor.
“They want 21st century buildings that can work with how they trade and run their businesses today and in the future,” Kenningham said.
An example would be the new 45K SF flagship store which will be opened by Adidas at the western end of the street later this year, in a building developed by Grosvenor and Stow Capital Partners and designed by PLP. The store will be one of Adidas’ most technologically advanced anywhere in the world.
Existing retailers also are pulling back. And the picture is uncertain for retailers that don’t have a presence on Oxford Street. It would typically be the first port of call for retailers new to London and the UK, but Polish brand Reserved is the only new entrant in the past few years. Microsoft will take a unit on the street for its first European flagship store, but the numbers are fewer and further between than in the heady days of 2013 and 2014 when multiple new brands used the street as a launchpad.
Partly this is Brexit. As Unibail-Rodamco-Westfield Chief Financial Officer said at Mipim last month: “We talk to a lot of European retailers who would love to be in London, but they just can’t do it at the moment. They don’t know whether they’ll be able to get their inventory in and out of the country.”
But there is also the question of rents. Italian lingerie and underwear retailer Intermissimi set a record for the street when it agreed a £1,153 zone A rent for a 2,635 SF store in May 2017. BNP Paribas pegs prime rents for the street at £1,100 zone A.
But more recent deals have been undertaken at around £950 zone A, and this level could fall given the current imbalance between supply and demand.
“Retailers are used to having to fight for space on the street, but now they have their choice of three or four units,” Kenningham said.
Owners, especially those that have bought in the past few years at very high capital values, might have factored in rents closer to the recent peak, and until either side blinks, the number of leasing deals are slowing.
This is just a temporary slowdown, Kenningham said. He said his company was advising on multiple transactions from retailers both new to the UK and here already that would absorb a significant proportion of this vacant space.
In the meantime, the western end of Oxford Street, typically seen as fancier than the eastern end because of the presence of posh department stores like Selfridges and John Lewis, has seen an increase in temporary lettings to the kind of souvenir shops and discount retailers that are not the kind that draw in the tourists.
Being the home to multiple flagship department stores was once an advantage for Oxford Street. And while Selfridges is still an international draw and hugely profitable, the same is not true of the street’s other department stores.
The former BHS unit has already been split in two and converted to a Market Halls food hall and a crazy golf concept. But Debenhams is currently facing the possibility of administration, or being purchased by Mike Ashley, who owns the next door House of Fraser store. Even John Lewis, previously a retail darling, is having a tough time.
Struggling department stores like Debenhams or House of Fraser need a radical overhaul of their business to win back customers. Or if they are to be converted to other uses, how many food hall or competitive socialising concepts can a single street accommodate? Grosvenor, for instance, is opening another food hall, Mercato Metropolitano, just off Oxford Street.
Beyond department stores, major retail owners across the world have been looking to widen the mix of uses in schemes to draw in consumers, a large part of which has been food and beverage, or leisure concepts.
But Oxford Street is hamstrung by public policy in this regard. It is surprisingly hard to get a decent meal on Oxford Street, because planning policy restricts owners to retail and fast or casual food uses. Westminster Council has vowed to broaden the type of uses that will be allowed on the street, but the official planning policy remains the same, meaning owners can’t yet add restaurants or bars to broaden the appeal.
There have also been some wider public policy issues affecting Oxford Street. There was much excitement from retailers and landlords about the prospect of the street being pedestrianised, but Westminster Council reversed the decision to ban cars altogether after complaints from residents of nearby areas where traffic would be redirected. The council will spend £150M on improving the area around Oxford Circus, but this is seen as small beer in comparison to the effect that total pedestrianisation could have had.
Then there is Crossrail, originally scheduled to open at the end of 2018, but now delayed until then end of 2019 at the earliest. When it eventually opens it will be transformative for the eastern end of the street in particular, Kenningham said. But for now that transformation is somewhat in limbo.
“The fact that people weren’t told until August that it would be delayed meant that no one had the time to adjust,” Kenningham said.
Even the most famous retail destinations in the world cannot avoid the flux currently affecting the retail sector. Oxford Street will survive better than most, but it won’t survive unchanged. Research from Savills shows that with the current rate of closures, in 20 years time 70% of the current retailers on the street might have moved away. And the process of change is far from simple.