Vacancy continues to come under downward pressure helping to drive rental growth, albeit the rate of this growth is starting to slow as performance normalises
Operationally, it has been a mixed picture in the West End. According to NWEC, footfall across key London streets, including Bond Street, Oxford Street, and Regent Street, was pretty stable in Q2, with monthly footfall up by an average of 2.1% year on year (YoY), with Regent Street being one of the lead performers.
Spend has been more mixed in Q2 and over the first half of the year in general; according to NWEC, spend to date in the West End is up 0.3% against the same period in 2023; however, Q2 reported two months of spend declines with the largest being in April with a -3.6% YoY decline. Weaker domestic spending in the West End has been largely responsible for this, with poor weather and inflationary pressures taking their toll. Looking forward, the recent resurgence in consumer confidence and continued slowing in inflation suggests a recovery in domestic spending over the second half of the year.
An acceleration in international arrivals into London has supported this with arrivals from the US, who account for 27% of arrivals into London
Marie Hickey, Director, Commercial Research
International spend in Q2 has been more resilient, with all three months of the quarter reporting YoY increases, with spend in June up 5.5%, meaning that year-to-date (YTD) spend was up 2.7% YoY in June. An acceleration in international arrivals into London has supported this with arrivals from the US, who account for 27% of arrivals into London according to ForwardKeys, continuing to report growth, with June seeing a 14% YoY increase. There was also strong growth in arrivals from high-spending states in the Middle East, with those from Qatar up over 100% MoM in June. The expectation is that this trend will continue over the summer as London is likely to be one of the beneficiaries of the displacement of tourists from Paris due to the Olympics. This is already reflected in forward booking data for August, which was up 16.2% YoY.
Rental growth continues as supply comes under further pressure
Occupier sentiment remains positive with availability of good quality space on the West End’s key streets heavily constrained. For example, the prime West End vacancy rate tightened again in Q2, reducing by 21 basis points (bps) to reach 3.7%. This marks the lowest vacancy level since Q2 2019.
Notably, Regent Street has experienced a substantial reduction in vacancy rates over the past year, dropping from 10.9% to 3.0% in Q2. As a result, the street now has the lowest vacancy of all the prime streets in the West End. This is likely to prove positive for Oxford Street, which has benefitted from some of the overflow demand from Regent Street, which has also seen a contraction in supply over the last 12 months.
Unsurprisingly, the contraction in supply continues to place upward pressure on rents. Rents in prime West End areas – Bond Street, Regent Street, and Oxford Street – increased by an average of 13.8% YoY, marking the second consecutive quarter of double-digit annual growth. There are signs, however, that this growth is starting to normalise, with QoQ growth of 1.9% in Q2 following a 9.4% quarterly increase in Q1. We expect this normalisation in performance will continue over the second half of this year; there will continue to be growth, but it will be just at a lower rate than that seen over the first three months of 2024.
Investment activity accelerated in Q2
In the second quarter of 2024, transaction volumes in Central London totalled just over £436m, up 66% on the previous quarter and more than four times that seen in Q2 2023. Just over half of this can be attributed to Blackstone’s acquisition of 130–134 New Bond Street for £230m, which marked a major return of US private equity into London retail and follows the activity seen by luxury brands/groups and private HNWI on the street over the last 12 months. For example, investment volumes on Bond Street accounted for 91% of all Central London activity in Q2.
The Blackstone deal reflects the improving investor confidence in Central London retail that has been mounting over the course of 2024, with more recent deals inked on Oxford Street and Conduit Street. As a result, we expect year-end transaction volumes to outperform the £1.2bn achieved in 2023.
Despite robust investor appetite and an acceleration in activity, indicative prime yields on Bond and Oxford Street remain unchanged, holding at 3.00% and 4.50%, respectively. We may start to see some downward pressure materialise later in the year considering the improving economic backdrop and falling debt costs.
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