London s West End: Review and Outlook

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1 Contacts Jones Lang LaSalle Retail Jones Lang LaSalle Hotels Heart of London Business Alliance Guy Grainger Chief Executive Officer - UK Tel: +44 (0) [email protected] Mark Smith Head of Retailer Services Tel: +44 (0) [email protected] Martin Thomas Director Central London Retail Tel: +44 (0) [email protected] Richard Brown Director Central London Retail Investment Tel: +44 (0) [email protected] Jonathan Hubbard Chief Executive Officer - Northern Europe Hotel & Hospitality Group Tel: +44 (0) [email protected] Jones Lang LaSalle Offices Jonathan Evans Director West End Agency Tel: +44 (0) [email protected] Julian Sandbach Director - West End Investment Tel: +44 (0) [email protected] Sarah Porter Chief Executive Tel: +44 (0) [email protected] New West End Company Richard Dickinson Chief Executive Tel: +44 (0) [email protected] London s West End: Review and Outlook James Brown Head of EMEA Retail Research and Consulting Tel: +44 (0) [email protected] Colin Burnet Associate Director EMEA, Retail Research and Consulting Tel: +44 (0) [email protected] Copyright Jones Lang Lasalle IP, Inc This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

2 01 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 02 Foreword Core West End in Figures We are getting used to living in uncertain times; the economic outlook for Europe as a whole remains challenging, as the rising wealth of nations in the east threatens our place in the global order. Our world is also becoming increasingly polarised, and a number of cities across Europe are prospering as never before. London is foremost amongst these cities, and continues to demonstrate extraordinary resilience to the downturn. Guy Grainger Chief Executive Officer - UK Jones Lang LaSalle AT LONDON S HEART IS THE WEST END The 2012 Olympics and Paralympics, widely perceived to have been the most successful Games of all time, placed London on a global pedestal. And London responded magnificently, emerging as a modern, diverse and welcoming city, sure of its place, leveraging off its heritage but also confident in its future role. London is unique and is truly one of the leading global cities, by whatever measure you choose. At its heart is the West End. This new annual report, commissioned by the Heart of London Business Alliance and the New West End Company and written by Jones Lang LaSalle, explores the current health of the Core West End (defined on the map below), and examines future growth prospects for businesses within its boundaries. It expands on previous versions of the West End Tracker, and will hopefully prove an invaluable guide for all with an interest in the West End, be they retailer, corporate, investor, resident, visitor or shopper. Heart of London Business Alliance and New West End Company Areas Source: Heart of London Business Alliance, New West End Company

3 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK Economic Context UK economic growth flat in was not a vintage year for the UK economy. The UK economy shrank by 0.3% in the last three months of 2012, resulting in flat growth for the whole year. After a second dip, output will start 2013 more than 3% below its 2008 peak, with little prospect of returning there before There have been some brighter signs, however. Jobs have been created at a healthy rate and lower inflation has eased the pressure on real incomes. But with confidence fragile, any upturn is likely to be faltering, at least until later this year. GDP is forecast to rise by about 1% overall in 2013, better than 2012, but not strong by historic standards. December s Autumn Statement provided few surprises. The double-dip recession resulted in no extra spending to support the recovery. Corporation tax cuts were welcomed, but will be clawed back in a further squeeze on welfare and other spending. On the monetary front, the Bank of England appears to have abandoned Quantitative Easing for the time being. A lack of evidence of the effectiveness of the most recent injections is likely to blame, as banks continue to use the extra liquidity to bolster capital, not lending. London s out performance is forecast to continue Against this relatively muted national outlook, the London economy appears to have been the UK s most resilient, and is certainly where much of the recent jobs impetus has been concentrated. Despite a recent softening in business sentiment in the capital, with the Lloyds-TSB s index mirroring the national downtrend last year, Oxford Economics project that the capital will pull away again in 2013 and consistently out-perform the national economy thereafter. Central London s growth for the current year is about 0.5 percentage points higher than the UK benchmark, and this margin is forecast to be sustained over a 4 year horizon. Retail sales in Central London are forecast to show moderate 1% growth in 2013 according to Oxford Economies, before accelerating to 3% growth by GDP Growth Forecasts Compared 3.5% 3.0% % Annual Growth % 2.0% 1.5% 1.0% 0.5% 0.0% 2013 Central London Source: Oxford Economics (Average Annual Growth) Rest of UK UK 300 MILLION VISITS, 10 BILLION SPEND PER YEAR. Source: Heart of London Business Alliance, New West End Company 04

4 05 LONDON S WEST END: REVIEW AND OUTLOOK February Summary Overall 2013 Outlook Overall performance and outlook for Core West End positive Despite footfall declining in 2012, visitor prospects are strong, as Eurozone crisis eases, and China drives Far East growth Further public realm improvements will improve shopper experience 2012 trading held up; future prospects resilient post Olympics Healthy current and future occupier demand for space Overseas occupiers and investors continue to eye trophy assets 2012 Summary London visitor numbers flat to end Q3, as Olympics disrupt normal patterns Annual visitor spend reaches 10 billion for first time in year to end Q3 Footfall down in first half of year, but recovers well in second half Footfall growth strongest on Regent Street, and in Piccadilly Circus & Leicester Square 2012 Summary Visitor Experience Major events boost footfall and spend Olympics and Crossrail catalysts for major public realm improvement projects Olympics contribute to uplift in visitor perception, and to a reduction in crime London Luxury Quarter continues to be a magnet for international visitors February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 2013 Outlook (Outlook rated out of 5) 2012 Summary Olympics provided momentum for second half sales drive; sales up 5% year on year from Aug to Dec Chinese and Middle Eastern visitor numbers strong; Chinese numbers up 56% in Q3 Food and beverage sales strong throughout the year Theatre and cinema receipts show year on year growth Hotel revenues boosted by major events 2012 Summary 2013 Outlook Tourism & Footfall Property: Occupier Demand London remains number one city in Europe for international retailers Regent St cements position as a global retail destination Improved line-up on western end of Oxford St; Crossrail boosts demand at eastern end Lack of supply on Bond St extends luxury pitch Demand for leisure space remains fierce Strong finish to the year for office leasing, but annual volumes down 2013 Outlook Trading Performance 2013 Outlook 2012 Summary Demand for retail assets remains strong, particularly from the Far East Overseas investors also dominate the office market, particularly for larger deals London remains focus of UK hotel investment activity; fundamentals amongst the strongest in Europe 2013 Outlook Property: Investment Demand 06

5 07 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 08 Tourism & Footfall Tourism & Footfall London visitor numbers flat to end Q3, as Olympics disrupt normal patterns London Overseas Visitors Source: London and Partners, International Passenger Survey Overseas residents made 31.3 million visits to the UK in 2012, 1% more than in 2011, according to the International Passenger Survey. They spent 18.7 billion on these visits, an increase of 4% on 2011, with December s spend up 15% year-on-year. Whilst Q4 data for London is not yet available, figures from the International Passenger Survey show that, for the year ending September 2012, London welcomed 15.2 million visitors, a very slight 0.2% drop on the previous 12 month period. Provisional data shows a drop in visits to London in Q3, the Olympics quarter, with about a quarter of a million fewer visitors than for the same period in This reversed much of the volume growth seen for the first two quarters of 2012, which, when Q4 data is factored in, should result in a full-year 2012 picture for London remaining more or less on par with As anticipated, the displacement effect of the Olympics appears to have disrupted normal patterns of overseas demand in Q3, with 6% fewer visitors than in Q3 the previous year. It is not possible to attribute Q3 s drop in visitors solely to the Olympics effect, as other influences, such as economic stress in Continential Europe, are also continuing to impact the market. This trend is evident when analysing where London s visitors are coming from. In Q3, visits from Spain, Italy and Germany were all down significantly. Visitor numbers from the US, the largest source market, were down marginally, whilst the convenience of the Eurostar boosted French visitor numbers. China was the other big mover, with visitors up 56% in Q3 from the previous year. Visitor spend is up, particularly in Q3 Whilst visitor numbers are flat, visitor spend is increasing. In the year to the end of September, visitor spend in the West End hit 10 billion for the first time, a 7% increase on the previous 12 month period. This increase was driven by receipts in Q3, which at 3.14 billion were 11.2% higher than for the same period in This can be partly explained by higher hotel costs commanded during the Olympics period. Expenditure by North American visitors was up 17.5% in Q3, EU15 expenditure up 5.4%, and the rest of the world expenditure up 19.0%, demonstrating the ongoing importance of global tourism to London s economy.

6 09 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 10 Footfall down in first half, but recovers well West End Footfall Source: Springboard Core West End footfall in the full year was down by 2.7% on 2011, continuing a trend we have seen over the past few years of declining footfall across UK shopping destinations. This is clearly a disappointing but not surprising result, and represents a slowdown from 2011, which saw 1.2% growth across the year. Visitor Experience Core West End Footfall was down 7.8% in the first half of the year, as economic conditions took their toll on consumer confidence, and the wettest weather in a century dampened shoppers spirits. But the 2012 Games then provided a boost to footfall during the second half of the year, with total footfall numbers up 2.5% on the previous year. There was a particularly strong finish to the year, with footfall up 8.4% in November and 5.1% in December. Footfall growth strongest on Regent Street, Piccadilly Circus & Leicester Square Footfall growth on Regent Street was considerably stronger than on the other main West End shopping streets, up 6.4% over the year, against 10% and 5% declines on Oxford Street and Bond Street respectively. Footfall in the Piccadilly Circus and Leicester Square area picked up markedly in the August -December period, and resulted in 4.9% growth over the year as a whole. As in 2011, footfall in the Core West End was stronger than UK national footfall in 2012, which saw a 3.4% decline over the year. Combined Heart of London & New West End Company Footfall vs. UK Footfall 2012 % yoy change Source: Heart of London Business Alliance, New West End Company, Springboard

7 11 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 12 Olympics contribute to uplift in visitor perception Visitor Perception Source: Heart of London Business Alliance, New West End Company Visitor Experience Major events boost footfall and spend Major Events Source: Heart of London Business Alliance, New West End Company The Queen s Diamond Jubilee and the 2012 Games provided the opportunity to highlight the Core West End as a location for staging big events. In June, as part of The Queen s Jubilee celebrations, a street party was held on Piccadilly, highlighting the very best of British entertainment, culture, art, music and food. The Piccadilly Big Jubilee Lunch which involved 32 businesses and over 60 media crews, resulted in an additional 500,000 visitors to the area. In July, the Olympics torch relay reached the West End. Starting at Marble Arch, the torch made its way down Oxford Street on a traditional open-top London bus, then continued down the Mile of Style of Regent Street and under the world-famous Piccadilly Lights. The event attracted over half a million people, many of whom used the opportunity to launch the Olympics party with a trip to the area s bars and restaurants. The Olympics led to a number of spin-off initiatives in the area, including the The London Media Centre Regent Street (LMCRS). Funded by The Crown Estate, LMCRS was created as a place for visiting Olympics journalists to work, meet with colleagues and to explore London s shopping, cultural and lifestyle areas of Regent Street and St James s. 1,500 media contacts visited LMCRS, with 220 issuing media bulletins. The Piccadilly Circus Circus, a pop-up circus, sprang into action in central London as part of the London 2012 festival. September s one-day event featured 143 performances of 48 different acts by 33 companies across 15 spaces, with 247 performers! The American Express Shop VIP event, in November, was again very successful and well attended. The event helped to drive footfall to 800,000, and spend increased by over 15 million as a result. Research undertaken at the event was overwhelmingly positive, and emphasises the importance of environment and experience. 85% agreed I enjoy these events because of the traffic free shopping event, and 90% agreed I enjoy these events because of the entertainment put on for the day. Finally, The Christmas Lights in the Core West End area proved to be a popular visitor attraction as always. The Marmite Oxford Street Christmas Lights give people the chance to appear within the mile long display in the interactive banners along the street, and Leicester Square introduced Christmas Lights for the first time in The 2012 Games appear to have given the Core West End a boost in terms of general perception of visitors. 90% of shoppers thought that London s West End was one of the world s top shopping destinations, during the American Express Shop VIP event in November. There was a gradual uplift in the total number of visitor interactions by the Heart of London Business Alliance s and New West End Company s Welcome Ambassadors over the year, a sign that they are becoming an accepted and integral part of the West End experience. Visitor interactions with the Welcome Ambassadors on Oxford Street and Regent Street peaked during the Olympics, reaching 60,000 in August for the first time. Domestic shoppers and visitors are attracted from the length and breadth of the country, illustrating the pull of the Core West End, and the unique experience of the area s flagship stores and worldclass restaurants. In many cases shoppers and visitors favour the West End over closer regional and super regional towns and shopping centres. International tourists are attracted from over 90 countries, reflecting the truly global nature of the West End. A major driver behind the area s appeal is the London Luxury Quarter, one of the world s leading destinations for luxury retailing. The strength and resilience of the West End is demonstrated by the fact that the opening of the two Westfield shopping centres has not had a major impact on the area. The issues of overcrowding, public realm, environmental quality and navigation within the Core West End persist, but steps are being taken to address them, which will help provide an experience that limits stress and maximises shopper enjoyment. Olympics and Crossrail catalysts for major public realm improvement projects Public Realm Source: Heart of London Business Alliance, New West End Company, Jones Lang LaSalle The 15 million improvement of Leicester Square was completed in time for the Olympics. The square was given a thorough make-over, and is now a modern, visitor-friendly space more befitting its status as a famous landmark and entertainment centre, and continues to be a magnet for visitors from around the world. As part of its ongoing redevelopment in St James s, The Crown Estate s St James s Gateway Scheme is also nearing completion. The 100 million joint venture scheme will deliver a mixed use, office, retail and residential development totalling some 100,000 sq ft, in addition to significant improvements to the public realm. The scheme is due to complete in the summer of 2013 and is the first port of the Crown Estate s 500 million investment programme. The proposed Crossrail station at the junction of Oxford Street and Tottenham Court Road has spurred the development of the eastern end of Oxford Street, and led to significant public realm improvements in the once run down area. Crime down over the year Crime and anti-social behaviour Source: Heart of London Business Alliance, New West End Company Total reported crimes in the Bond, Regent and Oxford Street area were down in 2012, by 7%, with the biggest drop recorded in August, during the Olympics period. Retail crime was down significantly, by 10% over the year. Total crimes were down 14.2% for the year in Leicester Square to Piccadilly Circus, and down 5.9% in the Piccadilly and St James s area.

8 13 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 14 Trading Performance: Shopping & Entertainment Trading Performance: Shopping & Entertainment Total retail and leisure sales in the Core West End were up by 1.3% in 2012, from 2011, driven by a strong performance in the second half of the year. Olympics provide momentum for retail sales drive New West End Company Retail Sales Index Source: Springboard West End retail sales were flat year on year in 2012 as forecast, compared with 2011, according to the New West End Company s retail sales index. Retail sales were up marginally, by 0.2%, in the UK as a whole in As expected, the Olympics provided a different trading pattern for retailers. As with other Olympics cities, visitors often left their shopping and sightseeing to the second week of the Games, with both footfall and sales building after the first week. Olympics merchandise and Team GB branded goods sold well throughout. Luxury brands reported increases in sales from designer gifts, accessories and jewellery, as international visitors purchased British brands to take home. Whilst sales were down 4.6% over the Olympics period, the positive momentum and feel-good legacy contributed to growth in September to November of 4.7% in comparison with the same period in Christmas trading fell off slightly in the West End, with December s sales down by 1.0% in comparison with Oxford Street continued its strong finish to the year, however, with 4.1% growth in December sales. Food and beverage sales strong throughout the year Heart of London Business Alliance Food & Beverage Sales Source: Springboard According to Heart of London Business Alliance s Food & Beverage sales index, sales were up strongly over the year, at 4.8% above 2011 levels. The only months which saw year-on-year sales decline were February and July. Again, there was evidence of the Olympics feel-good factor, as sales increased by 10.7% between August and November on the previous year, as both Londoners and visitors kept the Olympics party atmosphere going.

9 15 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 16 Cinema sales also show growth West End Cinemas HOL, NWEC & Combined Sales Growth vs. UK Sales 2012 Source: Rentrak West End cinema revenues were also strong in 2012, at 97 million, up 6.2% on This compares to an increase of 6.4% for the rest of London, and 3.5% for the whole of the UK & Ireland. Hotel revenues boosted by major events West End Hotels % yoy change London hotel performance remained robust in 2012, with revenue per available room (RevPAR) growing by 2% year on year. Demand was driven by major events such as the Olympics and the Diamond Jubilee celebrations. Occupancy remained at around 80%, reflecting the strength of demand for the London market. Source: Heart of London Business Alliance, New West End Company Hotel supply has grown by 7%, or 7,000 hotel rooms, in 2012 with a large number of hotels opening prior to the Olympics in order to fully benefit from the event, including the Premier Inn Leicester Square in May. Development activity continues into 2013, with another 31 hotels with 4,000 bedrooms currently in the pipeline across London. Chinese and Middle Eastern visitors boost revenues West End Global VAT-Free Sales Source: Global Blue West End VAT-free sales for the year 2012 were up 13% on 2011, with transaction numbers up 3%. Whilst positive, this represents a slowdown in growth from 2011, when sales were up 28% year-on-year. Sales from the key Chinese market were up 32% year-on-year, with sales from the Middle East states also buoyant (Kuwait: 11%, Saudi Arabia: 14%, UAE: 12%, Qatar: 52%). In addition, sales growth from South East Asian shoppers was strong, with Thailand and Malaysia showing 24% and 21% growth respectively. Theatre receipts edge up West End Theatre Attendance Source: SOLT Theatre ticket sales rose slightly over the year, despite competition from the Olympics. Overall sales increased by 0.3% to 530 million, with audiences up 0.6% to 14 million on 2011 s totals. West End shows such as Top Hat, Sweeney Todd and The Bodyguard helped boost London s theatre box office. Whilst sales and attendances dropped during the Olympics weeks, a very strong first half of the year and good autumn sales contributed to overall growth in the year. Complementing the resilient theatre scene, several high profile Royal Academy of Arts events, including the Hockney exhibition, helped drive footfall to the Piccadilly area over the course of the year.

10 17 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 18 Property: Occupier Demand Property: Occupier Demand London remains the number one city in Europe for international retailers Retail London is the most attractive location for international retailers in Europe, based on the presence of the top 250 international retailers in the key European retail markets, according to Jones Lang LaSalle s recent Destination Europe 2013 report. The UK s capital is differentiated by its retail market size and maturity, as well as the high degree of market transparency, which together have resulted in a long history of success for international retailers. Jones Lang LaSalle Cross Border Retailer Index 2013 Source: Destination Europe, 2013; Jones Lang LaSalle Regent St cements position as a global retail destination Regent Street has firmly established itself as one of the world s most impressive retailing destinations, and is home to some of the strongest international premium and luxury brands. We saw an unprecedented number of new arrivals on Regent Street in Hollister and Gilly Hicks opened a dual fascia flagship store, joining Superdry to anchor the southern end of the street, alongside other new arrivals such as Coach, Sebago, Lotus and Nespresso. At the corner of Vigo Street in the former Habitat store, iconic British fashion brand Burberry unveiled their global flagship store, twice the size of its New York counterpart. Opening later this year will be the long awaited first J Crew store in Europe, and also the first & Other Stories, a new H&M brand, in the former Mamas & Papas store at the northern end of the street.

11 19 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 20 Improved line-up at western end of Oxford Street; Crossrail boosts demand at eastern end The western end of Oxford Street continues to see great improvement, with the leasing of Park House providing new flagship store space. Despite having an existing presence on Oxford Street, Zara, Bershka, River Island and Urban Outfitters have all taken additional space in the development. And with Asics, Evans and Topshop all taking new stores, the appeal of the area west of Selfridges has been greatly enhanced. Demand for large and well configured stores remains robust, from both domestic and international occupiers. Rental levels are strongest closest to Oxford Circus, with the Zone A tone of 750 established on a number of transactions, although a well configured store in the best location could achieve 800 Zone A. The proposed Crossrail station has spurred the development of the eastern end of Oxford Street, and resulted in an area once disregarded by retailers becoming a desired location. The success of Primark s new flagship store has drawn interest from established retailers, such as Office, H&M and River Island. Zara have exchanged contracts on Oxford Street, subject to planning. Although still considerably below prime, recent transactions at the eastern end of Oxford Street have established this pitch at Zone A, a 40% increase over the year. Lack of supply on Bond Street extends luxury pitch With demand remaining strong and with limited supply, the trend for substantial premiums on Bond Street remains. The lack of supply, particularly in the prime jewellery sector, has to an extent, limited the rental growth on Bond Street, but other less prime locations are now accepted pitches for jewellery and watch brands, particularly the area between Conduit/Bruton Street and Grosvenor Street. Key deals in 2012 included Chanel agreeing to lease the whole building at 158/159, for a rent of circa 5 million, Belstaff s acquisition of a 22,000 sq ft store and Fendi taking the Mallet store and re-gearing, for around 800 Zone A. Prime rents on Bond Street are now 1000 Zone A, but a new lease on the open market could achieve a rent equating to 1,250 Zone A. The Conduit Street to Grosvenor Street area now commands around 800 Zone A. Strong finish to the year for office leasing, but annual volumes down Offices Annual West End office leasing volumes for 2012 ended the year 22% down on 2011, at 2.5 million sq ft. Activity finished the year strongly with 620,500 million sq ft let during the fourth quarter, a 4% increase quarter on quarter, however. Leasing activity in 2012 was dominated by smaller churn transactions, with only a single transaction greater than 100,000 sq ft, Burberry on Page Street. Significant deals in the Core West End area areas in 2012 included; Coca Cola on Wimpole Street and Lane Clark & Peacock on Wigmore Street. The TMT (telecommunications, media and technology) sector continued to dominate take-up in 2012, accounting for 31% of total transactions. Within the TMT sector, the Advertising, Publishing and Public Relations sub-sectors have been the most active in Overall occupier demand increased 10% to end the quarter at 6.0 million sq ft, marginally above the 10 year long term average. The TMT sector also continues to drive demand, accounting for 55% of active demand. Vacancy remained unchanged for the past six months at 4.1% for overall vacancy, significantly less than the long term average of 5.4%, and Grade A vacancy is at 3.2%, only marginally higher than the long term average of 3.0%. Prime rents in the West End have been stable since June 2011 at per sq ft, however rents in excess of per sq ft market are being achieved for smaller lot sizes (circa 5,000 sq ft) as seen through the transactions at 15 Sackville Street, 3 Burlington Gardens, and 1 Grafton Street. Investor demand remains as strong as ever, with retailers still expressing a desire to purchase freeholds wherever possible. With the disruption of the Crossrail works, occupier demand is weaker at the northern end of the street, but certainly in the medium term, the area has substantial growth potential. And the development activity, albeit still some two to three years away, will help to satisfy some of the pent up demand. The Jones Lang LaSalle EMEA Office Rental Clock - Q Demand for restaurant space remains fierce Restaurants, bars and clubs Amsterdam, Paris CBD, Warsaw Helsinki, Lyon Oslo, Stockholm, Stuttgart Berlin, Cologne, Dusseldorf Geneva Milan, Zurich London is now arguably the restaurant capital of the world, with the Core West End at its epicentre. London s dining industry is good health; in a recent Zagat survey, 40% of diners claimed that London s dining scene is better today than a year ago, with only 3% claiming it is worse. Diners are also reported to be spending more than in the previous year. Copenhagen, Hamburg, Moscow Munich Rental Growth Slowing Rents Falling Demand for restaurant, bar and club space in the Core West End remains as fierce as ever, from both local and international operators. The area has seen steady demand from burger and steak restaurant operators, in particular; BRGR.CO, Burger and Lobster, Patty and Bun, Flat Iron and Honest Burger all opened during In addition, Danish steakhouse, Mash, has opened in Piccadilly, and British steakhouse Hawksmoor on Air Street, rivalling the well-established Gaucho. And Café Royal Hotel, on Regent Street, is back with a brand new look for its three restaurants and bar all due to open in stages during London London City, West End Istanbul, Luxembourg St. Petersburg Rental Growth Accelerating Rents Bottoming Out Athens, Lisbon Budapest, Madrid, Rome Barcelona, Dublin Bucharest, Brussels, Edinburgh Frankfurt, Kiev, Prague Meanwhile, the 112-year-old Hippodrome, in Leicester Square, re-opened in July after a 40million investment as London s first casino, cabaret, eating and drinking entertainment complex, adding to the area s ongoing appeal. Manchester

12 21 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK 22 Property: Investment Demand Property: Investment Demand London remained the most active city globally in 2012, in terms of international cross border investment. In fact, London has been the most active city for three consecutive years, as global investors continue to seek safety in the most liquid and transparent markets. Demand for retail assets remains strong, particularly from the Far East Retail Investor demand for West End retail real estate remains strong. Demand is particularly strong from the far eastern markets, albeit European investors are still seeking high quality assets. Overall in 2012, overseas investors accounted for 69% of investment transactions. These purchasers were not only institutional, but also Private Wealth and Sovereign Wealth based. The UK institutional market is struggling to compete at the price point; the London based REITs can operate in the development market, but struggle to compete in the open investment arena. In addition, there is a continuing trend towards owner occupation in the West End, with retailers such as Zara, LVMH and H&M all looking to purchase buildings they occupy, or could occupy in the future. During 2012, pricing hardened on the prime retailing thoroughfares, with Bond Street and Oxford Street both seeing 50 basis points hardening of yield during the year. This yield contraction was in part due to the competition for assets, but also due to the realisation that rental growth is taking place in core locations, and as such, investors can benefit from both capital and rental performance. The retail offer is widening, as previously disregarded retail locations are being courted by operators, and pitches are extending to accommodate the increased tenant demand. Areas that are expanding include Shoreditch, Brompton Cross and both ends of Oxford Street. Key West End investment transactions in 2012 include; Zara s purchase of the Luminar building at 87/89 Bond Street, at a price reflecting a yield of 3.9%, and 181/183 Oxford Street sold in April 2012 at a price reflecting a yield of 3.75%. In Covent Garden, the flagship H&M store at 27/29 Long Acre was sold at a price reflecting a 4.23% yield.

13 23 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 Overseas investors dominate the office market, particularly for larger deals Offices February 2013 LONDON S WEST END: REVIEW AND OUTLOOK A strong fourth quarter was recorded in the West End office investment market, with 1.8 billion transacted, taking the year to date total to 5.9 billion, 25% higher than 2011 volumes. Activity in 2012 was driven by 20 transactions in lot sizes over 100 million, accounting for over half of the total annual volume. 82% of investment sales greater than 100 million were acquired by overseas investors. Overseas equity continues to be the main driver behind volumes, accounting for 60% of the total investment in 2012 (and over 80% of investments over 100 million), compared with 53% in A quarter of overseas investment was driven by European investors (compared to only 4% in 2009 to 2011) particularly from Germany. US investors were also notably active in the West End in 2012, acquiring 657 million of investment stock. The largest transactions to complete in 2012 included the Nido Portfolio to Round Hill Capital for 415 million, The Adelphi, on John Adam Street, to Blackstone for 265 million, and 23 Savile Row to Plaza Global Real Estate for 218 million. Strong overseas demand kept prime yields stable across all lot sizes at 4.0% for sub 10 million, 4.25% for million and 4.5% lots greater than 80 million. London remains focus of UK hotel investment activity International Cross-Border Investment - Most Active Cities 2012 Hotels In 2012, investment activity into London hotel real estate remained active, with transaction volumes totalling 1 billion, of which c 200 million was in West End hotels. Major sales included the 4-star Cavendish hotel that was sold for 159 million to The Ascott Limited, a company based in Singapore. Other transactions included the sale of the Odeon West End site (with planning for a 245 room hotel) to Radisson Edwardian Hotels for 65 million. The capital s hotel trading fundamentals are among the strongest in Europe and the market seems to be less prone to the wider economic environment than hotels outside the capital. The stability of the market is also reflected in the low yields for hotel acquisitions, typically ranging between 4% and 6%. The city remains a magnet for foreign capital and we have witnessed a growing interest from Asian and Middle Eastern investors. These equity-rich investors, often HNWIs or sovereign wealth funds, have focused predominantly on 4 and 5 star hotels and have driven prices in this market segment back to pre-crisis levels. City Ranking City Ranking City Ranking London US$30.7bn 1 Tokyo US$13.0bn 4 Seoul US$11.3bn 7 New York US$24.7bn 2 Los Angeles US$12.0bn 5 Washington, DC US$9.6bn 8 Paris US$15.4bn 3 Hong Kong US$11.3bn 6 Seattle US$ 8.8bn 9 Singapore US$ 8.4bn 10 24

14 25 LONDON S WEST END: REVIEW AND OUTLOOK February 2013 February 2013 LONDON S WEST END: REVIEW AND OUTLOOK Outlook OVERALL OUTLOOK FOR THE WEST END IS POSITIVE Prospects for West End remain positive Overall Outlook The overall outlook for the West End remains positive. The opportunity is there to capitalise on the profile and exposure afforded by the most successful Olympic Games of all time, and to further drive overseas visitor numbers. Combined with an improving shopper experience, and strengthening tenant line up, this should drive the retail and leisure market in the years to come. Likewise, the office market remains robust, with demand, both from occupiers and investors, strengthening. Eurozone crisis boosts EU visitor prospects Tourism & Footfall Boosted by Olympics profile, prospects for West End trading positive Trading Performance The great opportunity provided by the Olympics, is the boost it will give West End businesses in years to come. If only a small proportion of the billions of Olympics viewers can be converted to visitors in the next few years, in particular those from the key growth markets of South America, Asia, North Africa and Eastern Europe, then trading prospects for London and the West End remain robust. This golden opportunity is one that is potentially worth millions of pounds in till receipts and billions in investment in the West End over the next decade. Global Blue certainly expect London s normal pattern of international sales growth to return in 2013, with Chinese spend forecast to grow by +30%, and Middle Eastern spend growth forecast to be in the high single digits. Demand for occupier space remains strong Property: Occupier Demand Whilst PWC expects softer London hotel trading in 2013, post Olympics, (with RevPAR forecast to decrease by 6.8% year on year due to a 3.9% decline in occupancy and a 2.7% contraction in room rates), we expect overseas visitor numbers to London to remain healthy in The easing of the Eurozone crisis (and the weak pound) should encourage more EU visitors, following the drop-off in And deferred visitors who were maybe put off by the Olympics last year, in addition to return Olympics visitors, should boost 2013 numbers. Further public realm improvements will improve shopper & visitor experience Visitor Experience Several major projects will further enhance the public realm of the area. The Crown Estate has recently been given the go ahead from Westminster City Council s planning committee for its 500 million plans to further redevelop London s St James s. The redevelopment of two blocks aims to reconnect St James s between Haymarket and Regent Street, with historic St James s. The plans include the revitalisation of half an acre of public realm and the creation of a new 10,000 sq ft pedestrian square. Following the successful completion of Piccadilly Two Way Scheme in November 2011, Piccadilly Two Way Part 2 will further improve traffic and public realm provision in the Regent Street, St James s and Haymarket areas. Continuing investment in Oxford Street east will support the area s regeneration in years to come. Demand for retail and leisure space in the West End remains healthy, particularly for flagship space. Looking forward, we expect further international retailer expansion into London s West End, in particular from US and Chinese brands, following the likes of American retailers Victoria s Secret and J Crew and the first Chinese entrant into the market, Bosideng. And demand for restaurant space, from both local and international operators, is buoyant. Demand for office space also remains robust, with overall occupier demand at the end of Q4 above the 10 year average. Demand into 2013 is particularly strong from the TMT sector. According to our latest forecasts, London West End offices have the healthiest five year rental growth outlook of all the major office markets in Europe, with the exception of London City. And rental growth prospects for West End prime retail are second only to the power retail market of Moscow, over the same time period. Overseas investors continue to eye trophy assets Property: Investment Demand The outlook for retail investment in 2013 remains good, with demand from traditional and new capital gathering pace. London is perceived to be the number one global retail destination for occupiers and investors and this is driving performance to previously unseen levels. There is a limited supply of readily available stock in the market. We see yield contraction in 2013 slowing as competing centres such as Paris and New York start to offer more attractive returns. However, the weakening of the pound will make London continue to look relatively good value for the early part of the year. Overseas demand for office investment is set to continue and potentially strengthen over the next 12 months, with increasing activity from China, Thailand, Taiwan and Japan expected. Prime yields are expected to remain flat in the core however there is potential for hardening of yields for prime quality assets outside of the core markets in