Cash-strapped twenty-somethings are not the only ones desperate to own a home in central London: in recent years there has been a surge in the number of retailers opting to purchase rather than lease their stores in the West End.

Recent research by Savills, for example, shows that 22% of Bond Street is now owned by retailers. This is a break from tradition, whereby retailers in the area have tended to lease their properties from real estate companies and investors, and is indicative of wider trends in the retail sector:

High Demand for the Best Sites
The extremely high demand for space on prime West End retail streets means retailers are increasingly looking to own their properties as a way of removing the risk that their rental lease can be bought out by a competitor. This is a common process, whereby retailers pay large premiums to secure the right to rent a property, and thus ‘kick out’ the existing tenant. Patek Philippe, for example, bought the right to lease Watches of Switzerland’s 1,115 sq ft store on Bond Street for £10 million in 2014. Owning their store allows retailers to forgo the risk of this happening.

Retailers as Investors
Also important is the attractiveness of these prime central London streets as investment opportunities. International retailers often have large cash reserves and are keen to invest wisely: property prices in these high demand, prime spots are on a stable, upward trajectory. In some cases retailers are looking to diversify their income streams by buying whole properties, taking a portion for themselves and then renting the rest out, or by being the equivalent of a more traditional buy-to-let landlord. Chanel, for example, lets 7 Old Bond Street to DKNY. This diversification allows retailers to lessen the risk of fluctuations in the trading cycle, and secure cash flow over the long term.

We believe that retailers will buy more property in emerging locations in the West End, such as Dover, Albemarle and Conduit Streets. A key implication of this will be increased retailer investment in their stores. Much like home-owners, retailer owner-occupation increases the potential upside from investing in fit-out, merchandising and frontage.

This will improve the experience for customers, and further innovation in the sector, opening up ever more experiential retail concepts.

Patrick Cox