Accelerated growth in the luxury goods market will lead to the emergence of new locations synonymous with high end brands resulting in increased Zone A rents and higher values according to the latest research by BNP Paribas Real Estate.
BNP Paribas Real Estate’s research highlights that following a contraction in 2009 as a result of the financial global crisis the luxury goods market is now reversing this trend and is embarking upon an expansionary trail. Forecasts estimate that the market will see growth of 57% by 2015, partly attributed to the number of wealthy individuals worth more than $300,000, in Western Europe alone, set to grow to 9.1m by 2014 compared to 6.1m in 2009. In addition to this there are a number of well off individuals who restrained from spending during the crisis returning to purchasing luxury goods. The research cites the findings of retail expert Verdict who predict that the worldwide luxury market will be worth $499.3bn by 2015 compared to $320bn today.
BNP Paribas Real Estate’s report identifies key Central London deals which demonstrate the rental premiums that occupiers are paying for prime luxury retail pitches. They include: Alexander McQueen who has agreed to open a 4,500 sq ft store at Dover Street on a 15 year lease with a quoting rent of £300,000 per annum and Fendi, who has taken a flagship store and European HQ building on New Bond Street for a £1.7m premium from Mallet Antiques. They also anticipate that the former Molton Brown store at 58 South Molton Street, which is currently being marketed, will set a new Zone A rent beyond the current level of £350 per sq ft.
Within London, BNP Paribas Real Estate’s research points to a number of areas that are set to attract luxury retailers and see rental growth.
Domenica Scordo, retail analyst at BNP Paribas Real Estate said: “London’s retail property market has experienced strong growth driven by international retailers competing for space with the market remaining dominated by an imbalance in demand and supply which is prompting retailers to look for suitable space in newer, less established locations.”
BNP Paribas Real Estate’s findings suggest that the surrounding streets adjacent to the prestigious affluent locations demonstrate the most potential for growth. Albermarle Street and Dover Street, located next to Old Bond Street, could be asset managed to create a shopping district for luxury fashion. The new spin off brands such as Burberry Brit, Hugo Boss Orange and Ralph Lauren Rugby could provide demand for these areas which would create a critical mass of diffusion ranges leading to a new hub for luxury fashion.
Shoreditch is also highlighted by BNP Paribas Real Estate’s research as a potential luxury fashion destination with a number of retailers such as Christian Louboutin and Ralph Lauren keen to tap in to the well off market.
Michael Sheridan, director of Central London retail at BNP Paribas Estate said: “Shoreditch’s combination of low rents, a young professional working population as well as an eclectic mix of retail, hotels, bars and restaurants make the area attractive to luxury retailers, as brands lend themselves to this trend driven area.
“In addition to Shoreditch, the relocation of the US Embassy to Battersea will improve the value of both residential and commercial property in the Grosvenor Square area as redevelopment by Qatari Diar/ Chelsfield will deliver high quality residential, retail and catering provision and is therefore a potential luxury goods location.”
Michael Sheridan concluded: “As consumer demand for luxury goods continues to improve occupier demand will mirror this and we expect to see some diversification away from the traditional locations.”