London Leads Retail Comeback As Rents Soar At URW’s Westfield Malls

The quiet momentum building behind strong occupational performance at the UK’s prime shopping centres looks unlikely to be the industry’s best-kept secret for much longer. Especially if more of the industry’s top landlords reveal rental uplifts as eye-catching as Unibail-Rodamco-Westfield's.

In its trading update in late April, URW reported that the two Westfield megamalls to the city’s east and west saw gross rental income surge 21.6% to €29.8M in the first quarter compared to the same period last year. This stellar performance far exceeded any of its other European markets, with Spain the next best performer at 10.4% growth. 

While other players in the market can't match URW's Q1 growth, figures from the other big listed UK shopping centre owners, plus wider market figures, show that rents at the best UK malls are rebounding from their decade-long slump. 

Bisnow spoke to URW Director of UK Operations Jacinta Rowsell to find out how the retail real estate giant intends to build on its success. 

“In 2023, we signed over 80 new deals, and in the first quarter of 2024, we’ve signed another 23,” Rowsell said. “Obviously, some of the rental increase comes off a lower base after the pandemic and the opening of the second phase at Westfield London, but really, it has been driven by major brands investing in experiential and larger stores, which has seen us welcome new brands and build new categories.”

Those include the return of Sephora to the UK at Westfield London last year, followed by a second store at Stratford City. Boots has opened its new Beauty concept, Korean beauty retailer Pureseoul debuted at White City, and Space NK has expanded its footprint, while Toca Social is opening next year in part of the former Debenhams store.

Meanwhile, JD Sports and TK Maxx have opened large stores in Stratford, and Primark now operates over three floors at the mall. Inditex sportswear brand Oysho has also opened at Stratford after making its debut at Westfield London last year, while Gymshark will follow this summer with a 7K SF unit after opening its first store on Regent Street in 2022.

“Beauty has become a big category for us, but we’ve also seen a major increase in more accessible brands, which have proved very popular with customers,” Rowsell said.

She said it is readying to open a new Gravity Max leisure offer just below The Street, the external link between the mall and the Olympic Stadium.

“We’re looking for more opportunities this year and next to develop that leisure part of the mix.”

UK vacancy rates for Q1 at URW fell to 7.2% from 9.3% in Q1 2023 and 6.9% for the full year 2023, although it said that vacancy rates are expected to decrease below 2023 levels this year.

URW will also complete the residential project at Coppermaker Square, comprising 1,225 apartments in Stratford, in the second half of this year. This and the student accommodation built at Stratford has also influenced the tenant mix, Rowsell said.

“With so many people on the doorstep, they want more than a fashion offer, so they are looking for leisure experiences and F&B,” she said. “In addition, we have the Euros and the Olympics, so it will be a summer of sports, and we’ll be organising lots of events round those competitions, especially as they will be taking place across a similar time zone to London.”

URW is not alone in highlighting positive rent growth among the major retail landlords.

At its most recent update in November, Bluewater owner Landsec reported it saw key brands increase their focus on fewer but larger stores, with £24M of lettings signed or in solicitors’ hands at an average 6% above estimated rental values. Renewals averaged 2% above previous passing rent, and occupancy for the half-year to 30 September was up 100 basis points compared to the previous March, at 95.3%.

Similarly, Hammerson reported ERV up 5% for its flagship Bullring scheme in Birmingham following a £17M investment programme and estimated a year-on-year building value increase of £35M following the introduction of operators like Marks & Spencer and Toca Social. Like-for-like leasing deal value at its Brent Cross scheme was up 23% in 2023.

At British Land, which has more recently pivoted toward retail parks, the company said it had completed 500K SF of deals in the half-year to 30 November, averaging 13.1% ahead of ERV and 12.7% below previous passing rent. This activity improved its occupancy levels to 96.8%, with notable recent deals including 124K SF to Frasers Group in the former Debenhams and 43K SF to Inditex at Meadowhall in Sheffield.

The latest market update from adviser Savills says that although there is “still some way to go” before vacancy is at a level that encourages widespread investor confidence, stabilising footfall, falling vacancy rates and searches for new space would all have a positive impact.

“On a year-on-year basis, headline and net effective rental growth hardened significantly in Q1 2024,” Savills Commercial Research Director Sam Arrowsmith said in the update. “We have subsequently seen a positive uptick in rents on new deals across high streets and shopping centres. Perhaps even more positively, both headline and net effective rents continued to see positive growth.”

For Q1, this has translated into a year-on-year headline rent uplift on a rolling four-quarter average of 4.8% and a net effective rent on the same basis of 4.1%.

The UK was a star performer in URW’s trading update, where total shopping centre gross rental income amounted to €616.4M for the quarter, a decrease of 2% compared to the year prior, primarily because of disposals in France and in the U.S. in 2023. On a like-for-like basis, gross rental income increased by 3.8%.

The group operates 72 shopping centres in 12 countries, including 38 under the Westfield brand, which will increase to 39 once the redeveloped CNIT Eole at Paris La Défense reopens in Q2 with 45 new stores, plus a new convention and exhibition centre. 

URW has a €2.5B development pipeline of primarily mixed-use assets, although last month it was forced to defer the planned opening of its huge Westfield Hamburg-Überseequartier urban regeneration scheme in Germany until the end of summer after a water leak caused a delay.