Malls question Londonís retail real estate supremacy

Copyright: David Lawson/Financial Times 1999

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For decades the Marks & Spencer store on Oxford Street has been considered among the world's prime retail pitches. What more could be asked than the sector's top name linked to its supreme shopping address?But both these pillars of power are now trembling for similar reasons. 'M&S failed to keep an eye on its competitors creeping up. Oxford Street could face a similar problem unless it adjusts to the threat from new shopping centres,' said one retail analyst.

The problem is not confined to one legendary street. The whole central London retail market is watching carefully for any impact on business from the latest threat - 1.5m sq ft of covered shopping opened at Bluewater Park, a car's ride away near Dartford. There is no evidence yet that retail values are being hit, says Chris Phillips of real estate consultant Healey & Baker. 'But this is only the latest in a series of centres opening around London. Landlords need to be aware that pressure could be building.'

Oxford's Street's weakness is that is has neither heart nor cohesion. It is crowded, traffic-choked and noisy. Plans as dramatic as roofing the street and putting traffic and pedestrians on different decks have come and gone. Meanwhile, new centres offer air-conditioned, pedestrianised comfort. That is because they have a single landlord, powerful enough to make strategic decisions. Even the mix of tenants can be a crucial factor in setting the ambience and stimulating growth.

Nearby Regent Street has gone from strength to strength because of the co-ordinating influence of the Crown Estate, says Jennifer Greenwood of consultant CB Hillier Parker. A series of high-profile tenants have been attracted such as Talbots, the US ladies' wear specialist. 'It is significant that Zara, the hottest clothing retail name in Europe, chose Regent street for its flagship store after looking around London for three years,' she says.

Others might say its is just as significant that Zara also looked carefully at Bluewater. A few years ago it would have been unthinkable for a top name to settle outside the West End.But the final choice is why some observers believe the threat to central London as a whole may be overstated. 'The West End has always led the retailing pack and there is no evidence that it will lose its dominance,' says Stuart Donald of consultant Donaldsons.

Its resilience lies in the variety of markets - Oxford Street, Regent Street, Covent Garden, Kensington High Street and King's Road. Londoners are also still attracted by the aura of the West End which even the most glossy out-of-town centre will find hard to reproduce, says Donald. Tourists are even more besotted. 'It seems unlikely that someone from Taipei or Tampa Bay is going to travel 50 miles to a branch of Gap in an out-of-town centre when 100yds from their hotel they can visit DKNY or Prada on New Bond Street,' he says.

In fact, Russell Schiller, until recently the doyen of retail analysts at CB Hillier Parker, used to predict rental growth in Oxford Street by projecting from the number of international visitors to the UK. Every IRA bomb or airplane hijacking sent landlords scurrying to their calculators. Covent Garden has the double attraction of a place in every tourist handbook and the entertainment to attract UK visitors. It is one of the few places to reproduce the modern 'retailing experience' where shopping, clubbing and eating out feed off each other. It is the only place in the UK where rents have grown continuously for ten years - even through the recession, says Phillips.

Work and shopping is another potent mix. The massive flow of commuters into central London far outweighs the potential buying power around Brent Cross, Kingston, Lakeside or Bluewater, particularly when added to the dense population living in the West End. The rebirth of 'city living' among conversions in central London can only strengthen this link while the heavy planning restrictions now imposed on new out-of-town centres will cut off further competition, says Donald.

Landlords of new centres are also doing their bit to maintain the status quo by demanding high rents and strong covenants. Rents at Bluewater cover a wide range but a few choice tenants are reputed to be paying little short of the 350-400 pounds a sq ft Zone A top levels in Knightsbridge. An innovative new retailer would be unlikely to be able to set up in a mall but could take root in streets around Covent Garden, says Donald. 'It is the diverse, esoteric and cutting edge nature of many retailers in areas like Neal Street and Camden that makes central London so attractive.'

Some nagging doubts must remain, however. If a top name like Marks & Spencer can be weakened by ignoring the slow but inexorable rise of competitors, so can a dominant market. The vast car parks around Lakeside and Bluewater contrast with tighter controls in central London, and moves to improve public transport are excruciatingly slow. Institutional funds are pouring money into shopping centres like Bluewater, Basingstoke and Croydon, obviously convinced that growth prospects are strong. Ironically, they also own much of the West End and are well placed to ensure it remains a vibrant market. Legal & General, for instance is developing around Oxford Street/Argyle Street and the property company Shaftesbury is aiming to revive Carnaby Street.

Oxford Street could be a problem, however. Big new stores like Waterstones, Borders, Hennes and HMV have raised the somewhat tatty profile but it still lacks a heart. A more sympathetic view by Westminster planners to applications for restaurants and some form of entertainment would help, says Phillips.

The ultimate solution may lie in the hands of landlords and tenants themselves. Investors have a long history of fighting for the best rents no matter how unattractive the tenant. Big retailers have long complained about the poor environment outside their doors. A US-style business investment district, where occupiers and owners take responsibility for areas like street security, cleaning and overall appearance would be a big step forward. It might also inspire a co-ordinated approach to rival the ring of competitors gathering around London like raiders laying siege to a city.