Rents for prime central London shops boomed by 9% in the final quarter of 2015, the fastest growth experienced in sector since 1988. Meanwhile, rents for high street shops in central London increased by 18% for the whole of 2015, highlighting the growing demand for units in London’s most sought-after luxury retail destinations.
According to Phil Cann, head of UK Retail, CBRE, rent levels have rocketed as luxury brands compete for space in the heart of London’s premium marketplace – an area of very limited supply: “The Christmas period has been a mixed bag for retailers, with retail sales rising slightly on December last year, despite a marked retreat in footfall from UK high streets. Nevertheless, central London continues to boast some of the most sought-after retail spaces in the world, a fact brought to light by the quite remarkable jump in rents toward the end of 2015.”
In the rest of the UK, CBRE found that prime retail rents grew by a more modest 0.8% in Q4, and estimated capital values by 1.4%, together having little impact on yields which remain around 6%. Over the year, prime rents and estimated capital values for shops outside central London increased by 1% and 3.2% respectively.
During the busiest season of the year for UK retailers, footfall declined by 3.9% and retail sales grew at 0.1% compared to December 2014. This has been attributed to the weather and to changing consumer attitudes towards online shopping. Online retail sales grew by 15.1% during the period.
While UK shop rents grew fastest in the final quarter, CBRE found that office and industrial sectors also experienced significant growth in rents. The office market experienced rent rises of 1.7% in the quarter (6.5% in 2015), driven by high growth in the M25 North and M25 South zones of 7.4% and 7.3% respectively. Rents in the industrial sector grew by 0.8% in Q4 (6.8% for the year), with North West and Scotland recording the highest uplift.
Overall, UK commercial property rents grew by 1.3% in Q4 and 5% over the year. Yields remained stable across most locations in Q4, resulting in quarterly and annual yield shift of -1 and -24 bps respectively
