Real Estate

London’s West End: where small is going to have to be beautiful

Back to the pub. Back to the office. Back to normal. Shaftesbury is just hoping that Brits want to get back to their favourite “lively, holistically curated villages”. 

That’s the likes of Carnaby Street, Soho or Chinatown to you and me. But it is understandable nowadays that the owner of 16 acres of prime West End rest estate goes for the local, community billing rather than anything too big and flashy. Small is where it’s at, and not just when it comes to property income and valuations.

First-half figures to March from the commercial landlord were predictably ugly. The company collected about 43 per cent of its rent due, lower than earlier in the pandemic as Shaftesbury — whose name has sometimes been associated with gentrification and the installation of multinational chains — laid on rent concessions and restructurings to keep its tenants in those carefully curated streets.

Unsurprisingly, the valuation of its portfolio fell again: its collection of prime property has dropped by about 27 per cent in value since the beginning of the pandemic, compared with about 21 per cent in the global financial crisis. Lower rents are part of that but sentiment has also turned against the retail and hospitality space that makes up two-thirds of Shaftesbury’s income.

Big cities, and London specifically, have been the worst place to ride out the pandemic. True, West End footfall has quickly jumped back to about 45 per cent since hospitality reopened in April, about where it was amid the pushy eat out and back to the office government messaging of last summer.

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But it hasn’t moved any higher and there is a long way to go: central London footfall remains nearly 60 per cent below its 2019 levels, according to Springboard, compared with 28 per cent in outer London and about a third in market or coastal towns.

One question for the recovery, which with indoor dining just a week into reopening has only just begun, is whether greater flexibility in leases, through monthly payments or turnover-linked rents, are here to stay. And if so, does that weigh on West End valuations compared with the relative stability of pre-pandemic times? 

Shaftesbury argues that its usually tiny vacancy rates support valuations, regardless of flexible terms. But with vacancy now at 11 per cent, the landlord has some tending to do.

Again, that could mean a shift towards the small. In retail, at least, Shaftesbury’s smaller units have proved resilient, with estimated rental values down about 6 per cent in the first half compared with a drop of 20 per cent for bigger shops in central locations such as Carnaby Street or Neal Street in Seven Dials. Local services, such as bike storage, may fill some of those empty retail units that were pitched at a further-flung crowd.

After all, it’s no longer a big, wide world out there. Shaftesbury acknowledges it could take until 2024 for international travel to get back to 2019 levels, a problem for the West End more generally where tourists have previously accounted for about a third of all visitors and perhaps 45 per cent of spending.

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The cultivator of city centre hamlets says it is less reliant on international arrivals than that (and Numis argues its “aspirational”, hospitality-heavy offering could be a near-term advantage compared with the more luxury-focused line-up of rival Capital & Counties Properties, which owns Covent Garden and a 25 per cent stake in Shaftesbury). 

No one really knows how close West End footfall can get to 2019 levels without that international component. There is clearly an opportunity to go after the topped-up savings of domestic shoppers and mini-breakers. But some of Shaftesbury’s offerings, such as the soon-to-open NBA store (other non-US outlets: Milan and Doha), do seem geared to a global crowd, whatever the landlord says about the UK’s thriving basketball scene.

Shaftesbury, perhaps mindful of its reputation, thinks of itself as creating places in London for Londoners. It appears to have a good couple of years to prove its point.


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