The World and London - 2015

The World and London
 
Sales in the City

16 July 2015, by Marie Hickey

London’s ability to attract high spending tourists has established it as a global retail destination.

 

London, unlike many former hosts of the Olympic Games saw both visitor numbers and spend increase in its post Olympic year, a trend that has continued. London is expected to welcome 18.8m international overnight visitors in 2015, and has topped the Mastercard’s Global Destination Index in four out of five years, except 2013, when Bangkok held the lead position. London also topped the rankings for tourist spend at $20.2bn, with a significant chunk of this spent shopping.

London’s world famous shopping streets and its variety of international brands, including home grown ones such as Burberry, have helped to increase international tourist spend. But, it has been London’s ability to attract high spending tourists that has really established it as a Global retail destination.

 

 
London is world famous for its shopping

The biggest spenders have been those coming from the UAE and China. They each have an average spend per transaction of over £1,000 (US$1,600). The fact that China is now the largest consumer market of luxury products globally, with an increasing proportion of this spend taking place overseas, means that they are an attractive target consumer group – particularly for luxury brands.

At present Chinese tourists account for only a small proportion of total overseas spend in the UK. According to official data from the ONS 233,000 mainland Chinese tourists came to the UK last year with a total spend of £559m. This represents only 2.6% of total overseas spend.

In contrast France attracted over 1 million Chinese visitors. The difficulties experienced by Chinese visitors in obtaining visas has been cited as an issue contributing to these lower visitor numbers. Improvements to the visa application process, introduced last year, are expected to improve these numbers.

VisitBritain is hoping it will help to attract 650,000 Chinese visitors by 2020, with spending power of almost £1.1bn (US$1.7bn).

London’s position as one of the largest city markets for international tourists, and the potential upswing in Chinese visitor numbers, has attracted increasing numbers of international brands.

Since 2012, 98 international brands have opened their first UK store in London with another 11 expected by the end of the year.

New entrants


The majority of these new entrants have come from Europe (64%), with another 25% originating from North America are now also, largely reflecting the existing international mix of retailers on London’s key shopping streets.

However, retailers from Asia Pacific and South America have established a presence in London, reflecting the increasing globalisation of London’s retail landscape and its visitor profile. This influx of new retailer entrants, combined with availability constraints on the traditional key pitches, have helped to open up new retail ‘destinations’ within London.

Figure 19 details the retail areas where these 98 new entrants have located since 2012. Historically, any new retail brands to London would have tended to concentrate within a relatively narrow selection of pitches. The scale of new entrants and existing demand, combined with improvements and enhanced ‘curation’ by a number of existing and emerging landed Estates within Central London has widened the variety of retail ‘destinations’ available to both occupiers and shoppers.

FIGURE 19

New international retailer entrants by location (since 2012)

 
Figure 19

Source: Savills Retail Research

The top locations of choice for new overseas retailers to London since 2012 are Westfield (West London and Stratford), Covent Garden and Bond Street.

This influx of international spend has not been solely confined to consumers and occupiers. Investment by international investors into Central London retail property has also intensified.

Total acquisition activity by overseas investors totalled £1.5bn in 2014. This represented 59.2% of total activity levels. This investor behaviour is changing the ownership landscape of some of London’s key shopping streets. And it is not just international investors that have become increasingly acquisitive. International retail brands themselves have also been on their own shopping spree.

Overseas ownership

Close to half (45.2%) of all retail units on Bond Street are now owned by overseas entities, up by 10% in January 2013. But around a third of these international owners are in fact international retailers, not investors. While retailer owner-occupation is nothing new on Bond Street, the change has been the increase in acquisition by retailers irrespective of whether they are occupiers or not.

Retailer ownership has increased by 28% since early 2013, but only half of these retailer owned units are owner-occupied.

FIGURE 20

Ownership of retail units

 
Figure 8

Source: Savills Retail Research

Purchaser motivations seem to be in part competitive and in part a way to future-proof themselves against further rental growth following the strong rental uplift seen over the last three years (prime Zone A rents on New Bond Street have increased by an average of 20.8% per annum). This trend appears relatively unique to London and is facilitated by the city’s transparent and open real estate market.

On the flip side, this investment appetite from brands has also contributed heavily to competitive tension in yields and retailers becoming landlords to their competitors.

In the case of Oxford Street, where the need for protectionism is less acute, overseas retailer ownership is lower, accounting for 10.0% of all units on the street.

Meanwhile, investment activity by other international investors has picked up significantly. With availability on Bond Street some overseas investors have looked to other retails streets to satisfy demand. For example, overseas ownership on Oxford Street has increased by 24.4% since early 2013.

Going forward, activity from overseas investors is expected to continue but is likely to focus on those key retail destinations where current ownership profile offers opportunity.

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Key Contacts

Marie Hickey

Marie Hickey

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 3320 8288

 

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

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