Occupational KPIs remained robust in Q1, albeit rental growth and vacancy contraction have continued to slow
The softening in spend performance seen over the final quarter of 2024 continued into 2025. Q1 2025 spend was down 1.9% year-on-year (YoY) across the West End, according to NWEC (New West End Company), a trend mirrored across all the major streets, with Bond Street showing the greatest resilience with spend down 0.6%.
February proved to be the most challenged, with spend down 4.0% YoY for the month, with marked contractions in both domestic and international spend, with the latter down 3.8% YoY, marking the first annual decline in international spend since March 2024, albeit this is against a strong February 2024 comparator. The final month of Q1 reported little change in spend on a month-on-month (MoM) basis, meaning that in YoY terms, spend was only down -0.6%, a robust level of performance considering that 2024 Easter week fell into March, whereas this year it was in April.
With some international retailers increasing prices in the US to offset tariffs, shopping in London may prove to be increasingly more appealing
Marie Hickey, Director, Commercial Research
Looking to Q2 and beyond, April spend performance is likely to be in positive territory in both MoM and YoY terms, helped by calendar differences (Easter 2025 fell into April), boosting both domestic and international spend. The latter is likely to regain its position as the primary driver of spend performance, with NWEC reporting that international travel bookings for April are up 8.5% YoY. However, the pace of this future growth is likely to be more subdued as uncertainty weighs on both international visitor and domestic confidence.
US spend may prove to be a particular soft spot over the short term, with contractions reported in both February and March YoY. It’ll be interesting to see whether this accelerates in April, the month Trump announced widespread global tariffs and US consumer confidence hit a new five-year low. But, with the spread between US consumer sentiment and actual spend widening, and with some international retailers increasing prices in the US to offset tariffs, shopping in London may prove to be increasingly more appealing.
Rental growth continued, albeit growth has slowed significantly; only a select number of streets reported upward pressure
Vacancy continued to contract over Q1. Prime West End vacancy now sits at 1.5%, the lowest level since 2019. As expected, the pace of this contraction has been relatively marginal, considering the tight levels of supply across key streets; Q1 prime West End vacancy fell by only 43 bps (basis points) quarter-on-quarter (QoQ). Oxford Street now has one of the lowest vacancy rates in Central London, standing at 0.5% as of Q1.
While we are seeing vacancy contraction slow on key streets in the core West End, Kensington High Street and Cheapside in the City have seen an acceleration in vacancy declines. The former reported a 561 bps QoQ reduction, bringing the vacancy rate to 3.7% in Q1, on a par with Regent Street – a sharp improvement on the 15.0% reported 12 months prior. Likewise, Cheapside vacancy was down 333 bps QoQ to reach 5.0%, having stood at 11.7% in Q1 2024. Improving local dynamics in both cases is no doubt helping to bolster occupier confidence, reflected in the fact that both locations are attracting new entrants. For example, Abercrombie & Fitch signed for a new store on Kensington High Street in the quarter, with John Henric making its UK debut on Cheapside.
Similar to vacancy trends, Q1 also saw a modest uplift in rents. Although the historically low levels of availability, particularly of good quality space, do mean there is reduced evidence to warrant an upward shift in prime headline rents.
Savills All Central London prime headline rental index increased by a marginal 0.5% QoQ in Q1 with YoY growth of 5.0%, the lowest rate of annual growth since Q2 2023. All the quarterly growth seen in Q1 was driven by rental uplifts on a few select streets in the West End: Oxford Street West, Bond Street and Mount Street, with QoQ growth averaging 6.5% across the three streets. The continued upward pressure on prime headline rents on Bond and Mount, despite continued weakening in luxury sales globally, alludes to the shift in brand focus to major alpha cities where there are high concentrations of HNWI customers, a theme we explore in our Global Luxury Retail Outlook. Having said this, confidence amongst luxury brands remains muted against historical levels.
Looking across the wider market, increasing global uncertainty in response to Trump tariffs and weaker outlook for the global economy will further temper retailer and brand confidence over the remainder of 2025. As a result, we expect future rental growth to be tempered. Although for best-in-class opportunities, there will remain robust occupational demand.
Investment activity surged in the first quarter, driven by strong institutional appetite, with mounting interest in Oxford Street facilitating a downward shift in yields
So far, 2025 has seen a sharp increase in investment volumes. Across a total of four deals, retail investment in Q1 equalled £1.21 billion, a 359.6% uplift on Q1 2024 figures. Institutional investors were the leading acquirer type, namely Norges Bank Investment Management, which bought a 25% share of both the Shaftesbury Capital Covent Garden Estate and a 25% stake in the Grosvenor Estate, together totalling £882.5 million, 72.9% of total Q1 volumes.
With limited stock available on Bond Street, there remains a lack of precedent to bring in yields and therefore they remain at 3.00%. Investor appetite and activity on Oxford Street, however, has resulted in a 25 bps compression in prime yields for the street, bringing yields to 4.25%, its lowest level since Q4 2022 and the first downward shift in prime yields since Q1 2015. Any further compression in 2025 is likely to be minimal in response to weaker investor confidence, although this may be offset by falling debt costs.
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