London Retail Market Insights Q1 2025

Demand for retail space in London is gradually improving as consumer confidence rises heading into 2025. The wave of store closures from two years ago has slowed, and retail take-up has increased, particularly in central London's key shopping areas, boosted by the return of international tourism and higher office occupancy. Retail vacancy rates continue to climb but are expected to peak soon. Q4 2024 saw retail leasing reach a two-year high, signalling a recovery. Oxford Economics forecasts a 1.6% growth in retail sales for London in 2025. Notably, luxury retailers have flocked to Bond Street, and Oxford Street’s revival, particularly its eastern end, is ongoing, driving up prime rents. Affluent areas like Chelsea and Knightsbridge are thriving, and retail parks outside central London are also performing well. Supply of new retail space will remain limited, supporting lower vacancies. However, challenges remain, including lower footfall in the West End, the loss of tax-free shopping for international visitors, and the ongoing cost-of-living pressures. Retailer closures, such as Boots and Homebase, will continue to create vacancies. Despite these issues, investors are returning as retail yields stabilise, and annual deal volumes, though still below the 10-year average, are expected to increase in 2025.

London's retail market is slowly recovering after a challenging period marked by high inflation and rising business costs. While store closures continued to outpace new leases last year, improvements in consumer confidence, limited new retail space, and the conversion of some retail properties to other uses suggest that the retail vacancy rate will peak soon. Retail leasing saw a significant uptick in Q4 2024, with 2024 leasing up 15% from the previous year. Although leasing is still below pre-pandemic levels, retailers are more confident due to improving economic conditions, and retail sales in London are expected to grow by 1.6% in 2025.

Oxford Street has seen notable leasing activity, including deals by TK Maxx and Ikea, with availability on the street hitting a seven-year low. The arrival of the Elizabeth Line services at Tottenham Court Road and Bond Street has further boosted demand. However, the western end of Oxford Street remains challenging, with retailers at the Park House development leaving. The New West End Company's £90 million Oxford Street Programme aims to increase footfall and sales in the area. Other prime areas like Bond Street, Regent Street, and Covent Garden have been less impacted, with high-profile luxury and international retailers continuing to lease space.

Retail parks are performing well, with strong demand from diverse retailers seeking large units. Prime shopping centres are also recovering, with major brands upgrading their stores at Westfield London and Westfield Stratford City. However, footfall in the West End remains below pre-pandemic levels, and challenges such as the loss of tax-free shopping and the ongoing cost-of-living squeeze persist. While retail conditions are improving, the broader economic pressures continue to impact spending and retailer profit margins.

Retail rents across London have fallen in recent years, with a brief post-pandemic recovery quickly stalled by weak demand, squeezed profit margins, and unfavourable economic conditions. Limited rent growth is expected over the next few years, particularly in areas with high vacancy and low demand.

However, rents are rising again in prime locations following significant declines during the pandemic. Notably, rents on Bond Street have surpassed pre-pandemic levels, with prime Zone A rents reaching £2,600, driven by strong competition for space, such as Yves Saint Laurent's record-breaking lease. Oxford Street's prime rents have also risen to around £800 ITZA, rebounding from a 33% drop, especially in its eastern end. Rents on Regent Street have increased to £750 ITZA, and Covent Garden's prime rents have climbed to £1,300 ITZA, though still below their pre-pandemic peak.

Chelsea's King's Road has proven resilient due to affluent local shoppers, with prime rents rising above pre-pandemic levels to around £575, while Kensington High Street struggles with rents around £220 ITZA.

Outside of central London, high vacancy rates in many high streets and shopping centres are expected to limit landlords' negotiating power in the near term. However, retail parks are seeing strong demand, which is driving up rents in that subsector and is expected to continue.

London's retail investment market remains subdued, with rolling annual volumes of £1.8 billion, well below the 10-year average of £3.0 billion. However, improving economic conditions, better consumer sentiment, and falling interest rates are expected to boost investor demand in 2025, as the yield increases from earlier in the downturn have recently stabilised.

Big transactions on Bond Street continue to drive investment, with Blackstone's £227 million acquisition of 130-134 New Bond Street in April 2024 at a 3.5% yield. Other luxury retailers, like Richemont, have also made significant purchases in the area, suggesting investor confidence in prime retail locations.

Outside the West End, pricing remains weak, with a recent sale on Bishopsgate in the City of London at a 7.3% yield. Many recent transactions have occurred at sharp discounts to previous sale prices or have involved redevelopment opportunities. Notable deals include Lazari Investments' purchase of Fenwick on New Bond Street for £430 million and Aviva’s acquisition of a 50% stake in the Bentall Centre for £57.5 million, half its 2015 sale price.

Retail centres in less affluent areas have seen more significant price drops. For instance, the Pavilions Shopping Centre in Uxbridge sold for £19 million, reflecting a 14.5% yield, less than a third of its 2013 price. As prices fall and planning relaxations occur, retail repositioning and redevelopment projects are expected to rise, following a trend seen before the downturn.

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