The status of Bond Street as the UK’s most exclusive shopping destination is under threat, as one in four retailers on the famous street consider shutting up shop and moving out as a result of high rents and business rates.
About 25 of the 100 top fashion brands with stores on Old and New Bond Street are understood to have flagged to the property market that they are ready to quit the world-famous fashion district. Dolce & Gabbana, Hugo Boss, De Beers and DKNY are among the big brands understood to be considering their options.
Bond Street is the most expensive place in Britain to run a store, with fashion brands paying top dollar to be located alongside the biggest names in luxury including Louis Vuitton, Chanel, Dior and Hermès.
Many shops have decided to leave despite the surge in well-heeled tourists shopping in the capital since the Brexit vote, which slashed the value of the pound and overnight made London cheaper for foreign tourists.
Paul Souber, of property consultancy Colliers International, said a number of Bond Street leases were being “quietly marketed”.
In a sign that demand for expensive stores in the West End of London is faltering, Souber said potential tenants are no longer required to stump up millions of pounds of “key money” that had become standard – the premium a brand hands over to the existing retailer to buy their lease, in addition to the rent agreed. In 2014, Watches of Switzerland sold its Bond Street lease for £10m.
“Those premiums are not achievable today,” said Souber. “London is still a phenomenally strong shopping environment, but the market has cooled. Retailers are looking at their stores and asking do we need to be on Bond Street or should we go somewhere else and get more bang for our buck?
Last year Polo Ralph Lauren set a new retail rent record on New Bond Street after it agreed to pay a staggering annual rent of £2,225 per sq ft for its store following a rent review.
But a recent industry report by Walpole, which represents 200 British luxury brands, suggested the super-prime rental levels were becoming a problem. One prominent Bond Street occupier described the landlords as ruthless and only interested in the most profitable tenants. “Some sites are now so costly that there is a debate over whether it is possible to make a profit on them,” said the report.
Souber said the recent business rate revaluation had been the final straw for some international brands, which are comparing the cost of operating a store on Bond Street with Madison Avenue and Fifth Avenue in New York, or Canton Road in Hong Kong.
According to business rates experts CVS, Bond Street was one of the biggest victims of the shake-up in business rates, with luxury retailers on Old and New Bond Street required to find an extra £160m over the next five years.
The biggest loser from the changes was Louis Vuitton, which has seen its rates bill increase by £10m. Both Dolce & Gabbana and DKNY’s bills have increased by more than £3m.
Business rates are calculated as a proportion of the rental value. The rental value is supposed to be measured every five years, but the previous revaluation was controversially delayed by the government in 2015 for two years, making the changes that came into effect in April more pronounced, particularly in central London, where property values have surged.
Earlier this year David Fischel, the chief executive of Intu – which owns some of the UK’s biggest shopping centres, including the Trafford Centre in Manchester and Metrocentre in Gateshead – told the Guardian that the “extreme” business rates climate was a bigger deterrent to international retailers opening shops here than the uncertainty created by the Brexit vote.
The makeup of the West End’s key shopping district is also changing as brands choose larger, more economic stores on nearby Regent Street, which is enjoying a renaissance. Mount Street in Mayfair has also become a big draw thanks to a line-up that includes Marc Jacobs, Balenciaga and Céline.
While the majority of Britons may not be able to afford to shop on Bond Street, where the designer handbags can cost far more than a monthly mortgage payment, the luxury market is worth more than £32bn to the economy and employs more than 113,000 people.
The devaluation of the pound has triggered a boom in sales for brands like Burberry, with around 25% of cash spent in the West End of London coming from the wallets of overseas visitors.
Jace Tyrrell, chief executive of the New West End Company, a group that represents retailers in the area, admitted that “Central London costs are rising, particularly as a result of the recent business rates review, which hit Bond Street very hard.” But he said a £10m investment in the street is already under way, to improve its appearance, and insisted: “Bond Street remains the centre of London’s luxury quarter.”
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