Commercial real estate is undergoing its most turbulent period in years, but that hasn't stopped London's advisers from offering their clients unlikely bets. It's Oxford Street.
Oxford Street, once considered the crown jewel of British retail, suffered a sharp decline in footfall during the pandemic and struggled to recover. Two years ago, workers tore down a 25-metre-high embankment made of scaffolding that local politicians had hoped would draw tourists back to the street's west side. At the time, Marble Arch Hill was covered in decaying vegetation and was derided by critics as unnatural, cheap, and expensive, not of the nature desired by a world-famous shopping district. did.
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A candy store on Oxford Street, London, January 2023. Photographer: Tom Skipp/Bloomberg This was Oxford Street's lowest point, with foot traffic still low and many stores vacant. One real estate banker said the road was blighted by American-style candy stores, then raided on suspicion of tax evasion, and commercial investment almost completely stopped.
Since then, there has been a steady recovery. The Elizabeth Line, a new £19bn ($23.9bn) tube service, will start serving regional stations in late 2022, while high-profile retailers open new stores and £90m regeneration is planned. Oxford Street still ranks as the busiest retail destination of any European capital.
Alan Spencer, head of UK retail at estate agent Savills, said: “The condition of the streets is excellent and has changed significantly over the last 12 months.” “It's really an amazing change.”
Visitor numbers to Oxford Street rebounded significantly last year, with the eastern precinct registering the fastest growth of any major West End precinct, up 19% compared to 2022. A report by the New West End Company, a lobbying group for retailers and property owners that compiled the figures, said the increase was “generally due to an improved retail and leisure mix”.
It also recognized that the Elizabeth Line brings hundreds of thousands of additional people to the region each day. Transport for London found that his five most popular journeys on the service all included Tottenham Court Road station at the east end of Oxford Street.
Still, customer traffic remains at pre-COVID-19 levels. His NWEC statistics across Oxford Street show a 12% year-on-year increase in 2023, but a 23% decrease when compared to 2019.
Explaining the slow-motion crisis in commercial real estate: QuickTake
Fergus Keene, head of central London investments at BNP Paribas' real estate business, said rents were also falling and UK retail had “finished its correction” and looked very attractive. “A lot of investors, especially global investors who want a little taste of London, are now coming back to retail,” he said.
A boarded-up shop with graffiti supporting the NHS on Oxford Street in January 2021. Photographer: Chris J. Ratcliffe/Bloomberg
The sector's downturn began before the pandemic as consumers increasingly shopped online, a trend exacerbated by the coronavirus. However, high interest rates and the continued popularity of remote work have recently led to a decline in office valuations around the world, particularly in the United States. In some markets, retail is suddenly and unexpectedly looking like a more attractive option for real estate investors.
Mr Keene added that after “seven or eight years of absolute hardship”, the UK retail industry “has probably found its level and is recovering”. “He’s the kid who made a comeback.”
London-based real estate investment firm Great Portland Estates Ltd. has made a strategic decision to invest along the Elizabeth Line, said Sarah Goldman, head of retail. This includes blocks on Oxford Street itself, which are home to brands such as jewelery retailer Pandora A/S.
Goldman said there was a “tremendous” amount of tenant signings along the strip last year, adding that the strip's recovery will accelerate with each new store opening. Mr Keene said around £100m had been invested in 2023, and he expected that figure to rise three to four times this year.
Music retailer HMV returned to Oxford Street in November, replacing one of the street's infamous candy shops. Meanwhile, IKEA branches are finally scheduled to open this fall after delays. Krispy Kreme Donut Co. is cutting the ribbon on Friday for its new store, complete with an influencer studio, and plans to stay open until 9 p.m. to catch tourists heading home from West End shows and nearby restaurants. Other recent stores include Dr. Martens Plc, Under Armor Inc., Steve Madden Ltd. and an outlet store for the Paris Saint-Germain soccer team.
Ikea's decision to have Oxford Circus replace its former Topshop store has raised eyebrows, as the Swedish furniture giant has strong ties to suburban retail parks. But the company is one of several new retailers on the street that believe shoppers are looking for an in-person experience rather than relying entirely on online purchases.
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Marble Arch Mound, London, August 2021. Photographer: Hollie Adams/Bloomberg
“Customers want smell and taste,” said Peter Jelkeby, IKEA's head of UK and Ireland. “They want to sit, they want to touch and feel. They want to get out and socialize.”
The experience of visiting Oxford Street will be central to its recovery and planned regeneration. A “miniature world” of toys and models called Pocket Planet is being developed towards the west end of the street and hopes to be more successful than Marble Arch Hill. Meanwhile, Westminster's local authority plans to spend £90 million widening footpaths by 40%, creating more seating areas and green spaces and improving lighting.
“We've managed to get to a situation where everyone can invest and trade with confidence,” said Geoff Barraclough, Westminster City Council member for planning and development.
IKEA plans to open a store on Oxford Street this fall.Photographer: Betty Laura Zapata/Bloomberg
However, the politics surrounding Oxford Street remain difficult. Marks & Spencer Group, a retailer popular with Britain's middle class, is embroiled in a legal battle with the government over plans to demolish and rebuild its Art Deco flagship store on the street.
UK Secretary of State for Housing and Communities Michael Gove blocked the development last summer over concerns about the impact on nearby landmarks and the building's sustainability, but CEO Stuart Machin ) called the move “utterly pathetic.” The dispute reached the High Court this week.
M&S is embroiled in a legal battle over plans to rebuild its Art Deco flagship store.Photographer: Jason Alden/Bloomberg
Other retailers have also spoken out in support of the plans, which M&S says are vital to the future of Oxford Street and the prosperity of London's West End. GPE's Goldman agrees. Mr Gove's decision “gives us limited confidence as developers to be able to invest in this city”, she said.
Frustration with the Conservative government also includes tax breaks for foreign shoppers that ended with Britain's exit from the European Union. The current Chancellor, Rishi Sunak, who was Chancellor of the Exchequer at the time, has refused to reinstate the policy, which the Treasury considers costly and potentially fraudulent. Campaigners cite research from the Center for Economics and Business Research that says the so-called “tourist tax” costs the UK economy around £11 billion and prevents two million tourists a year.
Earlier this month, Sunak First Minister Jeremy Hunt ordered the UK's fiscal watchdog, the Office for Budget Responsibility, to review VAT-free tourist shopping. The results of the survey are expected to be announced on March 6th.
Nevertheless, big street retailers seem happy to be there. John Lewis, the employee-run department store chain, said footfall at its seven-storey flagship store in the street increased last year, partly due to tourists, but British spending has increased since Covid-19. He said this is also because consumers are “rediscovering the joy of shopping in person.”
Music retailer HMV returned in November, replacing one of the street's infamous candy shops.Photographer: Carlos Jasso/Bloomberg
Eoin Tonge, finance director at Associated British Foods, which owns fashion chain Primark, added: “Oxford Street is trading very well.” “Oxford Street is definitely having a great resurgence thanks to tourism, but overall it’s busy.”
According to BNP's Mr. Keene, the recent decline has presented a great buying opportunity. “I'm now telling my clients, 'Get in now, rock bottom, you're going to make a lot of money,'” he said. “That's what I'm telling them – and some of them are listening.”
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