The direct UK property market has returned 3.5 per cent over the last year, in comparison to 11.6 per cent from central London retail; offices in the City and West End have returned 7.1 per cent and 10.3 per cent respectively. In a similar way, the UK listed property market has returned 29.8

London is the world’s most popular real estate market, outstripping even New York and Paris. Of the £177bn invested in property this year, £13.2bn has been spent in London. With a highly transparent market and valuations in the capital still well below their peak in 2007, properties in London are in high demand – particularly from overseas investors. Malaysian funds, for example, have invested £1.5bn during the last 12 months alone.
Retail in the capital benefits from a concentrated demographic pattern, higher levels of tourism and a more affluent population. According to CB Richard Ellis, London is still the most sought after city in the world for retailers, with over 55 per cent of overseas retailers having shops in the capital. Retail space across London has increased in recent years and footfall numbers have also risen. Significant retail developments include the Westfield shopping centre at Shepherd’s Bush and the Westfield Stratford City beside the Olympic Park.
Meanwhile, the demand for luxury items continues – particularly from Chinese and Japanese shoppers. This high-end niche of the retail market is booming, as retailers look for prestigious locations, usually in the West End, for their flagship stores.
London remains one of the few locations in the UK where retail tenants are still prepared to sign up to longer leases. In some prime London streets, retailers are signing new 15-year and, in some cases, 20 or 25-year leases to secure their space. Void rates also remain very low at 2.9 per cent.
Given its location, the historic West End has a very limited supply of properties, providing little room for expansion as planning restrictions limit the creation of new space. As a result, tenant demand for this highly-desirable location remains very strong, so it has been able to sustain high rents. There has also been an increasing trend to convert West End offices into residential properties, which has put further pressure on supply.
In the City, demand has diversified from the usual financial occupiers, with technology, media and telecoms (TMT) groups snapping up available space. These companies are rapidly expanding and are looking for convenient, central locations. TMT groups have increased their presence in the City by 40 per cent over the last year.
Current central London stock picks
Occupier demand remains strong in central London and this is good news for listed property companies that own properties in the area. Here are two of our favourite listed companies that invest in central London.
Great Portland Estates (GPE) is focused on office properties in central London. GPE is committed to buying undervalued – and often unloved– properties, which they then develop and modernise. They are focused on buying properties in highly-desirable locations, though, with the majority of GPE’s holdings in the supply-restricted West End. GPE also has some substantial developments in the pipeline, which should lead to higher earnings growth. These include major developments at Rathbone Place and Hanover Square.
We believe that a resilient central London market, combined with a strong management team and an ambitious development pipeline will continue to see GPE prosper.
Shaftesbury has a concentrated retail portfolio in central London, centred around Covent Garden, Carnaby Street and Chinatown. Shaftesbury is expected to be a key beneficiary of the increasing trend for international retailers to open in central London. Swedish and Spanish retailers opened in Carnaby Street earlier this year and set new rent records for the street in the process.
The fundamentals for the company are encouraging. With a robust portfolio, no near-term debt refinancing requirements and strong management expertise, Shaftesbury is an attractive holding in the portfolio.