The year concluded on a positive note, with West End sales figures continuing to exhibit growth into the fourth quarter. According to New West End Company, end-of-year data reveals a 4% year-on-year (YoY) increase in spending, with December reporting a 2.2% rise YoY. Much of this growth was driven by increasing international spend, with domestic spend waning over the second half of 2023, no doubt in response to the squeeze on disposable incomes due to soaring inflation.

Some of the upside in West End spend will have been driven by inflationary pressures. However, reassuringly, the number of transactions in the West End was also up over the year by 5.4%.

The growth in spend was also reflected in footfall. The final quarter of the year saw average weekly footfall up 0.9% YoY (based on 13-week average), with December seeing a more marked increase of 5% YoY. As a result, full-year footfall was up 5% on 2022 levels. Going forward, we’re likely to see more normalised footfall trends as much of the growth seen in 2023 was driven by strong growth in Q1 due to weak YoY comparison data in 2022. While West End footfall performance is normalising, there are some streets that are outperforming. The eastern end of Oxford Street continues to outperform in growth terms, with year-end footfall up 19% YoY, bringing it within 11% of 2019 levels. This momentum is primarily credited to the new Elizabeth line connection at Tottenham Court Road station, alongside new office development and an improved combination of leisure and retail offerings in the area.

Strong occupational demand continued into the final quarter

The occupational recovery continued into Q4 with strong leasing impetus. Prime West End vacancy (based on vacancy across the area’s premier streets of Oxford, Bond and Regent) continued to shrink, reducing by 66 bps (basis points) in Q4 to 5.6%. This was largely driven by significant contractions on Oxford Street, with both the west and eastern ends of the street reporting a 394 bps and 323 bps contraction, respectively, over the quarter. As a result, Oxford Street’s vacancy rate of 3.6% is at its lowest level since Q3 2019. With a vacancy of 1.1%, the eastern end of the street has the most constrained availability, impressive considering the volume of newly developed space that has come to the market over the last 12 months.

As expected, reduced availability has translated into rental growth. Q4 saw prime indicative ZA rents increase 2.4% quarter on quarter (QoQ) in the wider (core) West End, pushing annual growth for the year to 9.7% YoY. Mayfair’s luxury area also performed well, with year-end growth of 5.7% driven largely by those streets beyond Bond Street, such as Mount Street, Conduit Street and Dover Street. One interesting trend last quarter was the acceleration in rental growth on streets beyond the West End core, as in those in Chelsea, Knightsbridge and South Kensington. These ‘fringe’ West End areas reported a doubling in rental growth in Q4 to 5.1%, with year-end growth for 2023 of 9.5% YoY. For some streets, such as King’s Road, it now means prime ZA rents are back in line with their 2019 peak. Some of this uplift reflects growth off a lower base, but it also reflects the continued focus by premium brands and F&B concepts to expand into affluent London villages as some degree of agile working has now become the norm.

Recovery across the West End will continue on its current trajectory, albeit at a slower pace than seen over the second half of 2023

We expect the growth in retail spend in the West End will continue into 2024, albeit the rate of growth will be far more subdued than seen in 2023, reflecting a normalisation in performance. The challenge to spend will be the continued slowing of international spend, as seen over the second half of 2023, due to the absence of VAT-free shopping for international visitors. This will be offset, to a certain extent, by further growth in international arrivals into London. For example, according to data from New West End Company, forward travel bookings from China for Q1 2024 are up 335% YoY, bringing them within 8% of 2019 levels. This bodes well for retail spend, particularly for February during the Lunar New Year period, but again, this spend may be more muted than seen prior to the pandemic due to the abolition of tax-free shopping. Recent reports that Chancellor Jeremy Hunt is reviewing the possible re-introduction of VAT-free shopping provides some hope that it could be reinstated as part of the March budget.

And while domestic spend was more challenged over the second quarter of 2023, we think we’ll see a reversal of this trend as we move into 2024 as real disposable income growth returns to positive territory, helped by slowing inflation. This will be key to offsetting slowing international spend; however, weak economic performance is likely to weigh on consumer confidence and, in turn, spend over the immediate term.

This slowing in spend growth is likely to be reflected in occupational markets. We expect there to be a continued contraction in vacancy, generating further upward pressure on rents, however, at a slower pace than seen over 2023.

Investor appetite for prime retail assets driving activity

The final quarter of 2023 saw investment activity total £186.3 million across eight deals, bringing the year-end figure to £1.19bn, 129% up on 2022 annual volumes. While the £430 million acquisition of Fenwick’s in Q1 2023 accounted for a significant share of this, by removing this from the analysis, activity was up 47%.

Investment into Bond Street has been a major driver of volumes, accounting for 70% of all Central London activity in 2023, an increase on the 59% reported for 2022 and significantly above the pre-Covid ten-year average of 15%. The most active buyers on the street, in deal count terms, were domestic private high-net-worth (three acquisitions) followed by overseas investors and luxury brands/houses, equating to two deals each. For example, The Swatch Group acquired 171 New Bond Street and 32–33 Old Bond Street, the former being home to the Group’s Harry Winston brand and the latter having Saint Laurent as a tenant. Investment by luxury brands into Bond Street is nothing new, but their initial return in 2020, with Chanel acquiring its flagship on the street followed by LVMH Group purchasing Dior’s flagship in 2022, marked a resurgence of activity following a four-year hiatus. Their return is a reflection of the strength of luxury sector performance in recent years, which has helped to bolster balance sheets. This, and their longer-term strategy and appetite to secure and protect brand presence on the street, has also come into play at a time when higher debt costs have been a barrier to entry for other types of investors.

Looking forward, falling debt costs and improving occupational performance, we suspect will help drive investment activity beyond prime Bond Street, with Oxford Street and affluent ‘villages’ likely to prove particularly attractive. However, it will be access to stock that will continue to be the biggest barrier to activity.

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Further reading:

Spotlight: Shopping Centre High Street Q4 2023

UK Leisure report 2022

The latest edition of Re:Imagining Retail is out now – read issue 3 here