They say good things come in threes and the country (Londoners in particular) have the following ‘reasons to be cheerful’; number 1. the arrival of the long-awaited and much vaunted Elizabeth Line (London’s east-west railway), 2. the Queen’s platinum jubilee delivering an extra bank holiday and excuse for a party, 3. mid-June temperatures reaching levels higher than Jamaica and the Maldives (apparently). After two years of lockdown and enforced social isolation these are, relatively speaking, cheerier times – albeit against the backdrop of grey skies in the form of some very challenging economics.
The return to happier days and ‘normality’ has not been a linear experience and the acquired acceptance of what is or should be ‘normal’ changed in that period between Spring 2020 and Spring 2022. Whether it’s the 5 days-a-week commute to a distant office or a routine shop in the high street, Covid accelerated structural trends that were already latent in the consciousness.
Re-thinking retail
During lockdown many people shifted to doing their shopping online. That trend has largely continued and shopping is now essentially a leisure activity, an event to assess the quality of physical goods and estimate sizes and quantities before ordering delivery at home. With no need to carry heavy bags there’s a greater inclination to stop and commemorate a days’ shopping well done, a coffee to plan the next excursion or a spontaneous visit to a cinema or theatre to make a day of it. That’s the domestic consumer today.
The tourist is an altogether different creature. The shops are a ‘destination’ for the visitor, be they individuals from across the land or those making the trek via sea or air. And as a destination, retail has to offer something special, goods beyond those available in local establishments or locations that offer more than just purchases. Then there is the incidental consumer, passing by and enticed by an item they didn’t know they needed or wanted.
A very welcome Jubilee boost
Whatever type of consumer it was, there was a sharp increase in footfall on the high street during the bank holiday week that marked the Queen’s 70 years on the throne, according to the British Retail Consortium (BRC)1. The number of people visiting shops was up 17.1% over the Jubilee week, compared with the average for May 2022.
As well as stocking up on supplies for the bank holiday weekend, many people took advantage of the extra public holidays to socialise with friends and family as data from Barclaycard showed that spending in restaurants was up 41.5% Thursday-to-Sunday, compared with the same period in 2021; spending in pubs, bars and night clubs rose by 74.2%, while entertainment spending increased by 67.3%2.
Keeping faith
The flagship of our portfolio is St Christopher’s Place Estate, London W1, a mixed-use investment combining retail, restaurants, offices and residential property in pretty pedestrianised streets in the heart of central London’s shopping district.
This unique thoroughfare and adjoining streets between Oxford Street, Wigmore Street and Selfridges, comprises 150 separate lettable units; 50 shops and restaurants, 40 office suites and 60 apartments. The estate, like the rest of Central London, was severely impacted by the government lockdowns during the Covid crisis. As a major component of BMO Commercial Property Trust, this led to the Fund slumping to a heavy discount, exceeding 60%, during the early pre-vaccine days (April 2020). That was a discount to NAV deeper than during the global financial crisis (+40% 2007-2008).
While we can’t schedule events like the jubilee at will, it is good news for us, as commercial property landlords, that given a reason, consumers will return to the high street. This goes some way to quashing the retail death spiral worries. In St Christopher’s Estate we are seeing customers coming back, footfall at weekends is increasing as the alleviation of pent-up social restrictions finds an outlet. By midsummer 2022, footfall was back at, and on some days ahead of, 2019 levels.
St Christopher’s Place is renowned as one of London’s premier pavement dining destinations, which has been enormously beneficial in an age of social distancing. James Street, within the estate, was temporarily pedestrianised over the summer of 2021 and Westminster City Council appears supportive of this move becoming permanent as part of the Oxford Street District Improvement Programme. In this jubilee year at least, with outdoor commemorative events positively encouraged, pedestrian friendly initiatives are enjoying a heightened acceptance.
The office lives on
Similarly, the return to office working (even a few days a week) has been a welcome development. Today, offices on the estate are seeing a renewed level of appetite as the hybrid working model evolves and offices are found to be a still necessary element in the new work/life mix. A central London location in an area with boutiques and restaurants, for incidental shopping and social gatherings, scores points. As such, returns from the office segment of the portfolio are expected to accelerate over 2022. In another observation, we have seen yields compress and rental growth picking up. While so far, the rental growth from office investments has been marginal, it is positive nonetheless. Furthermore, sentiment in both London and the regional office market is becoming more upbeat with well-located, quality assets, with a strong tenant base receiving good levels of interest.
Grounds for optimism
Looking ahead to Autumn and the opening of the Elizabeth Line’s Bond Street station, there are grounds for further optimism. In the few weeks that the line has been open it has already been heralded a game changer. It brings a far larger tract of the country to within easy reach of London. Faster and more convenient commutes to work, a gateway for domestic tourists via Paddington, Farringdon and Liverpool Street, international travellers to and from Heathrow and Kings Cross St Pancras (Eurostar) (Thameslink from Farringdon), all presage a new era for central London and BMO Commercial Property Trust’s St Christopher’s Estate3.
1. Jubilant improvement to UK footfall. 6 June 2022. (brc.org.uk)
2. www.reuters.com 6 June ‘Thank you Ma’am – UK retail and hospitality get Jubilee fillip.’
3. In the period from 31 December 2021 to 31 March 2022, St Christopher’s Place increased in value by 0.1 per cent. This represented the first quarter the estate has increased in value since the outset of the pandemic. Activity has rebounded well with many of the food and beverage occupiers reporting ongoing improving trade. We are hopeful that this trend will continue throughout the year, supported by the much-anticipated further opening of the Elizabeth Line.
