Two Tales of One City
High levels of retail obsolescence were evident in our town centres and high streets long before the pandemic. While Central London anticipates the return of consumers, repurposing single use retail for alternative uses is a growing feature of suburban London.
4 minutes to read
The recovery in Central London retail lags behind the rest of UK
Unprecedented is perhaps the most over-used term in referencing the effects of Covid-19 but in the case of London Retail it certainly rings true. For a long time, Central London has been an outlier to the wider UK retail market, historically almost always outperforming it. For example, the Global Financial Crisis barely registered in the West End retail market: while retail rents and capital values across the country rebased at a rate of knots, those in the capital went in the opposite direction. Annual rental growth was often double-digit and prime yields compressed to sub 3.00%.
Such is the irregularity of Covid-19 that it has not only undermined these dynamics, but turned them on their head. In many respects, Central London lags behind the rest of the country in both its pace of re-opening and extent of its recovery. While the West End previously appeared to defy gravity, it now seems to have a redoubled level of gravity weighing it down.
Clearly, the key reason Central London retail has not proved immune this time around is that the market is heavily driven by tourist and worker audiences. CACI data suggests that, in the West End, tourism accounts for as much as 46% of comparison goods retail spend in a year. This average across the UK is around 10%. The West End retail market is slightly less dependent on worker population trade. The same data from CACI indicates that workers account for only 9% of comparison goods spend in the West End, compared to a UK average of around 6%. Of course, the hospitality sector is distinct from this and the contribution of London's worker population to the hospitality spend is substantially higher. In essence, London's retail market is heavily dependent on overseas and domestic tourists, but less so on office workers while in contrast, London's hospitality sector is heavily dependent on both.
Repositioning of suburban London retail space
Elsewhere across the capital, the dynamics could hardly be more different. Enforced working from home and the ongoing legacy of dynamic working has given fresh impetus to localism as people rediscover retail and leisure facilities closer to where they live. As positive as this renewed consumer demand for suburban London centres is, it shines a spotlight firmly on an issue that was bubbling away long before Covid-19 reared its ugly head. In many Outer London centres, there is a huge disconnect between the quality and nature of retail/leisure supply and the demographics of the people that live there. Most areas of Greater London have gentrified to a greater or lesser degree over the years, yet the retail offer has not evolved at anything like the same pace. While nationally the UK retail market grapples with the notion of over-supply, across London it is often less about whether there is too much space and much more about whether or not there is enough of the right space.
Put simply, there are major opportunities in most London suburban centres, from an investment, development and occupational perspective. These transcend any transient localism seen during the pandemic. Many of these opportunities will require substantial re-purposing to other uses such as leisure, food and beverage, residential or logistics and are, in effect, major regeneration projects, generating new jobs, increasing local authority revenues and enhancing social value. This speaks directly to the wider ESG agenda. While Environmental tends to dominate the narrative, what could be more Socially-enhancing than having vibrant, prospering communities that people are proud of and where they want to live?
Newton’s 3rd law of motion states that “for every action, there is an equal and opposite reaction”. In the context of London retail, this appeared to ring true during the pandemic: while Central London toiled, outer London centres had a localism-inspired shot in the arm. Without wishing to discredit one of our greatest ever physicists, this relationship needn’t continue going forwards. Central London and London’s suburban markets are not entirely binary forces but instead, part of an integrated whole. Both can prosper at the same time, the former re-establishing itself as tourists and workers return, the latter re-establishing its own identity after many years of under-investment and neglect.
The success of much of the suburban London repurposing may not be fully known for many years. Yet the growing number of live schemes suggests developers are able to unlock value from repositioning alternative uses that accommodate higher demand while local authorities are able to enhance social value with the regeneration of town centres.
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