London’s retail market is about to enter one of its most exciting phases. Two major shopping centre schemes and a myriad of other smaller developments are going to change the face of London’s shopping offer over the next 10 years.
The expansion coincides with research predicting tough times for retailers. Retail analyst Verdict published research earlier this month forecasting that like-for-like retail sales growth across the UK will be just 0.1% over the next five years against rising costs of 5-6%, owing to rental and wage increases.
“Everybody is feeling it at the moment. Retailers are driving hard bargains because they can, and they get into a mindset that, when they do a particular deal, they can then get that same deal everywhere else. They are more picky,” says Sheila King, retail leasing director at Hammerson, which owns Brent Cross shopping centre in north London, and is also building retail space in the City.
On the flip side, two years ago, research by Experian for the GLA concluded that demand for retail space in London was such that it would require an equivalent of 10 more Bluewaters by 2016.
Experian’s view has not changed, says consultant Jonathan Riches. Despite the tough trading conditions, he points out that factors, such as immigration into London, are expected to be higher than was projected in the original research.
What trading conditions will be like in 10 years’ time is hard to predict. In terms of supply, however, there are a few certainties. So what will the retail market look like in London, and which locations will be the winners and which the losers?
Australian developer Westfield will be the biggest player between now and 2012. It is building Westfield London, formerly known as White City, in west London, and will also be responsible for Stratford City, part of the Olympics site in east London. The two centres will provide a total 3.6m sq ft of retail and leisure space.
Enclosed retail space
Then there is Elephant & Castle, Croydon, and Brent Cross, where major chunks of space are planned. In addition, there are plans to refresh smaller retail markets in, for example, Ilford.
Westfield has seen the emerging gap in the market. “Our business premise in coming to the UK was that there was generally an underprovision of quality-enclosed retail floorspace. We believe there is room for these schemes,” says Michael Gutman, managing director of Westfield, UK & Europe.
Gutman is modest about Westfield’s London schemes, pointing out that the company “inherited” the plans. The developer may not have been involved in either scheme from the start but its involvement and record have brought confidence to the sector.
Westfield London was launched officially this month. Its recent high-profile lettings include Louis Vuitton and Tiffany’s. However, the fact that Debenhams and Marks & Spencer are to be the centre’s anchor stores have disappointed some commentators, who believed John Lewis would be the obvious choice. The fact that the department store giant has not gone west could be down to the scheme’s proximity to its stores at Oxford Street, Sloane Square and Brent Cross. It has, however, signed for 240,000 sq ft at Stratford City, which would fill a catchment hole to the east and north of the capital.
Westfield has been accused of being slow to win lettings at Westfield London, but there are many who will jump to its defence. Chris Braithwaite, partner at Cushman & Wakefield, says: “It probably hasn’t let as much as it would like but the centre was only officially launched this month and it has had a change of ownership.”
The developer will not start Stratford City until Westfield London is completed in 2008, but it will aim to have the east London centre open by 2010.
Such big schemes will inevitably affect surrounding retail markets. Ken Gunn, head of property consultancy at CACI, says: “Large new shopping centres hit surrounding property first with stagnation but then you see massive shopping transfer, probably in the region of 20%.”
Birmingham is an example. Rents in some shopping streets around the Bullring have dropped by as much as 40% since its opening in August 2003.
To a certain extent, Gunn believes the West End is under threat from big developments such as Westfield London and Stratford City. “We are looking at the West End having the single-largest loss of spend in the UK over the next 10 years,” he says. “But it is the biggest retail centre, so you would expect it to be under threat.”
CACI, however, does not anticipate the West End losing its number one slot. Annual spend there is £3.94bn against its nearest rival, Birmingham, at £2.58bn. And the West End, with its unique locations such as Carnaby Street, Bond Street and Covent Garden, is more than just the average high-street shopping destination. Nonetheless, the potential loss of spend cannot be ignored.
“You’ve effectively got two regional shopping centres close to the centre,” says Gunn. “Those parts of the West End that have average, functional retailing, and are no different to what these new places offer, will suffer.”
Worry for Oxford Street
So should Oxford Street, which is dominated by standard high street retailers, watch its back? Richard Scott, associate director at Churston Heard, warns: “The worry is that Oxford Street will be focused totally on tourists, held together only by Selfridges and John Lewis, because everything else can be seen elsewhere.”
Braithwaite agrees that Selfridges and John Lewis are the “two wonderful differentials” of Oxford Street’s shopping offer, and adds: “Oxford Street’s challenge is creating the right type of retail that people want. If you are looking for regular size shops, it is very difficult to find.”
And to that end, the street is at a disadvantage. The retail areas within the West End that have grown in recent years are predominantly in single ownership the Crown Estate’s Regent Street being the most obvious example. With single ownership comes more control of the retail mix and overall brand of the area, and the flexibility and financial security to take a punt on
a variety of retailers.
“With single unit ownership, it is all about zone As and covenants,” says Scott.
Hammerson’s Brent Cross in north London arguably within the catchment of Westfield London is also in danger of losing shoppers. In fact, research by CACI predicts an 8% expenditure leakage to Westfield London.
Hammerson’s King is not overly worried but admits: “You can’t just ignore what is going on around you, and we have been looking very carefully at the mix and differential between us and Westfield London,” she says.
Recent lettings at the centre, such as royal lingerie maker Rigby & Pellier and niche shoe shop Kate Kuba, appear to be Hammerson’s attempt to strengthen its high-end retail offer. In addition, the developer is considering extending the centre.
Gunn points out that a third of affluent households are responsible for 40% of the total retail spend, and west London has a high proportion of wealthy residents. By attracting the likes of Louis Vuitton to Westfield London, Westfield clearly has ambitions to tap into that potential spend.
Other centres to fall within Westfield London’s catchment, such as Hammersmith, Ealing and Kensington High Street, are also perceived to be at risk of losing retail spend.
Hammersmith has already been hit by “nervousness”, says Matthew Maddox, director at Churston Heard. “Retail there is changing and becoming more value oriented,” he says. “It will probably lose its fashion offer.” Some retailers are already considering leaving, he claims.
James Ebel, director at Harpers Dennis Hobbs, which solely represents retailers, says: “Ealing retail is going to die. Rents are high, and I wouldn’t invest there at the moment. There will be a loss of retailers and spend.”
As for Kensington High Street, he believes there will be some caution. “Kensington High Street still has rental movement but retailers looking to go there will have an eye on the future, and they will think about break clauses,” he says.
Broad catchment
Stratford City is at a much earlier stage of development, so it is more difficult to predict its likely effect. Westfield’s Gutman says. “It will have a very broad catchment.”
The announcement recently by Redbridge council that it has shortlisted developers for its Unity Square mixed-use scheme in Ilford could be interpreted as a defensive manoeuvre, as the town is just five minutes’ train ride from Stratford.
“Stratford will be more mass market shopping than Westfield London, and Ilford and Romford are in prime position for customer capture,” says Gunn. He goes as far as drawing comparisons between Ilford and the position that Dartford was in when Bluewater opened.
Dartford’s saviour has been food and budget retailers. Indeed, budget retailers often move into areas vacated by the middle market. But agents point out that there is a ceiling to the rents they will pay.
With the help of the New West End Co, the West End will, in 10 years’ time, have ironed out one part of the capital. However, other retail offers will have to survive the opening of these shopping centres. And landlords in these areas may have to change their rental expectations.
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Westfield London (White City) Size: 1.6m sq ft Developer/freeholder: Commerz Grundbesitz and Westfield Key lettings: Mark & Spencer, Debenhams, House of Fraser and Next Quoting rents: £300 per sq ft Opening date: Late 2008 Comments: Core catchment of 2.67m and market share of 14% |
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Stratford City Size: 1.8m sq ft Developer: Westfield Rents in area: £135 per sq ft zone A, 22.7% growth in past year Existing centre: The Broadway, 290,000 sq ft Comments: Development will commence on completion of Westfield London, with opening scheduled before 2012, as scheme is part of the Olympic Games |
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Croydon Centres include: Whitgift and Centrale Size: two centres provide a total of 1.35m sq ft. By 2010, two new centres will take Croydon’s shopping centre retail space up to 2.7m sq ft. Rents: £270 per sq ft zone A, stagnant for the past four years |
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West End includes Oxford Street, Regent Street, Bond Street and Carnaby Street Rents: Oxford Street west, £525 per sq ft zone A, 5% growth in past year Oxford Street east, £390 per sq ft zone A, 4% growth in past year. Regent Street, £425 per sq ft Comments: Crown Estate’s investment in Regent Street is paying off, with among the highest rental growth in the UK, up 33.8% in five years |
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Ilford Main shopping centre: The Mall Size: 300,000 sq ft Long leaseholder: Mall Corporation Rents: have not moved for the past four years, are £160 per sq ft zone A. Comments: Redbridge council has shortlisted developers for a mixed-use redevelopment of the town centre, called Unity Square |
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Romford Two centres: Liberty Shopping Centre and The Brewery Sizes: 790,000 sq ft and 310,000 sq ft respectively Owners: Cosgrove Property Group; Henderson Global Investors and Clerical Medical Investment Group Rents: £205 per sq ft zone A, a 2.5% rise in the past year |
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Brent Cross Shopping Centre Size: 844,000 sq ft Developer/freeholder: Hammerson, Standard Life and Barnet council Key tenants: John Lewis, Fenwick, Waitrose Rents: £425 per sq ft, 6.25% increase in past five years Opening date: June 1976, refurbished June 1996. Comments: plans being worked up for an extension. Hammerson says there is room for more leisure and possibly a cinema |
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Ealing Shopping centre: Ealing Broadway Centre Size: 275,000 sq ft Freeholder: Legal & General Rents: £190 per sq ft zone A, 2.7% rise in the past year Comments: close proximity to Westfield could weaken position |
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Elephant & Castle Size: Around 1m sq ft Developer: Southwark council has shortlisted Lend Lease, Mallory Clifford and St Modwen. Comments: Southwark council has indicated it does not want a shopping centre-style scheme |
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Hammersmith Shopping centre: Broadway shopping centre Size: 110,000 sq ft Freeholder: William Ewart Properties Rents: £190 per sq ft zone A, 11.8% rise in the past year Comments: could see shift in retailer profile owing to proximity of Westfield London |
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Source: Colliers CRE, EGi Shopping Centres |
