City of gold: Can retailers tap London’s Square Mile?

Considering the spending power of London’s City slickers, the retail offering in the Square Mile is unexpectedly modest. However, while Canary Wharf has set the pace in providing retail space, the City itself is finally gearing up its offer.

With development under way on Land Securities’ One New Change scheme – dubbed the City’s first shopping centre – and a sweep of retail space opening up around nearby Cheapside, retailers now regard the Square Mile and Docklands as a credible option for mass-market shopping. It seems that what has worked spectacularly well at Canary Wharf – which reinvented its retail offering in 2000 to include high street fashion – is set to be imitated in the City.

So far, developments in the City have been primarily oriented around office space, with retail being more of an afterthought in small ground-floor units. However, the significant new developments taking place at One New Change and Cheapside are breaking this mould. In the case of One New Change, it is the first retail development in the City that brings in multiple large units of such a scale but, while it is clearly a timely addition to an evolving retail market, will the new schemes attract shoppers beyond the weekday lunchtime trade?

“What One New Change has done has been fantastic for the City [already],” says CBRE director Michael Dibley. “Because Land Securities is marketing a scheme three years in advance of completion, it’s put the City in retailers’ minds. The retailers are being offered what is effectively a shopping centre in the City, which is a new thing and when they’ve looked into it, they have seen all the other schemes going into the area.”

It’s not just about One New Chnage, though. A number of developments in and around Cheapside have completed or are due for completion this year. These include the St Martins project at 150 Cheapside; two Hammerson projects, 60 Threadneedle Street and 125 Old Broad Street; 120 Cheapside, which is being developed by Land Securities; Menolly’s 107 Cheapside; and Japanese developer Mitsubishi’s scheme Bow Bells House.

By any standard, the Square Mile and Docklands are home to a staggering array of financial institutions and, therefore, masses of wealth. With the London Stock Exchange, the Bank of England, the Financial Services Authority, Lloyd’s of London, Barclays Bank, Citigroup, HSBC and more than 500 other banks, it stands proudly among the world’s leading financial districts. In the 2008 Global Financial Centres Index, London topped the table, ahead of New York and Hong Kong and dented only slightly from last year by the turmoil surrounding Northern Rock.

Historically, however, retail in the City has been less of a gold mine. A number of retailers have tried to tap into the enormous wealth shared between London’s 340,000 City workers over the years, but have often struggled to make it work. For example, House of Fraser opened a store on the north side of London Bridge, but the location was widely perceived to have been wrong.

The traditional assumption has often been that wealthy AB1 shoppers need an upmarket luxury offering and this has been put into practice most notably at the Royal Exchange on Threadneedle Street.

Situated in the traditonal centre of the Square Mile, right next to the Bank of England, the scheme aimed to bring Bond Street and Sloane Street-style luxury retail to the heart of the city. It is home to – among others – Herm賬 Molton Brown, Paul Smith, Haines & Bonner, Tiffany and Jo Malone. Yet, despite the wealth of retail offering, the scheme has found the going less than smooth and has become a destination more focused around jewellery and accessories than fashion.

Hammerson head of retail leasing Sheila King says: “It’s a big myth to think that the City is all about coming in and spending pots of money. Some luxury brands do really well in the City, but a lot of them would rather go to the people who work in the luxury areas of Bond Street and Sloane Street.”

The Royal Exchange is the only pure luxury retail offering in the City. While it has by no means been a failure, the exclusivity of its offering may be limiting its success. The key, according to King, is in offering a wider range of retail to the City, mixing mid-market fashion with more upmarket luxury brands.

“It’s a much broader market as time goes on,” explains King. “It’s still relatively early days for the City and retailers are still experimenting, but they can now see that there’s more of a mix and they’re getting more confident. Retailers have always been nervous, but they are becoming much more confident because they can see other retailers trading well.”

Hammerson’s Moorhouse development, which opened last August, is a mixed-use development consisting of 17 storeys of office space above a two-storey retail space. It has just one retail tenant, New Look, which has an offer more biased towards men’s suiting than normal. While the City may seem an unusual location for a 22,700 sq ft (2,110 sq m) New Look store, it is serving the retailer well.

New Look is not the only retailer that has had its eyes on the City, but, up until now, the door has been closed, simply because the store sizes that big fashion retailers require were not available.

“Historically, the main problem with the City is that there’s been a lot of pent-up demand for the big units from the likes of Zara and H&M, but they haven’t had the places to go before,” explains Cushman & Wakefield partner for London and the Southeast Matthew Hyland. “The developments on Cheapside are creating units of the size that they are looking for. It won’t be luxury, but it will be good-quality national retailers.”

The developments around Cheapside and Canary Wharf – many of which are coming to fruition this year – have drawn entrants to the City including River Island, Ted Baker and Jaeger.

One New Change has undoubtedly been a catalyst for interest in the City. By signing Topshop, Karen Millen and Hobbs for units at the 220,000 sq ft (20,440 sq m) of retail space, Land Securities has sent out a clear signal that the scheme will be big on fashion. And the fact that these big players are on board has added to the growing interest from retailers – fashion or otherwise – in setting up shop in the Square Mile.

Canary Wharf has already been through its retail renaissance. The turning point came eight years ago, when owners Canary Wharf Group (CWG) made two key decisions. “We made the big change in 2000, when we introduced fashion and started weekend trading,” explains CWG vice-president of retail Camille Waxer. “The majority of the retail was service-based. We carry out monthly customer satisfaction surveys and, at the time, the message was coming through loud and clear that they wanted fashion.”

The decision to bring fashion retail to Canary Wharf has paid dividends, and proved that retail can work in office-based areas, even at weekends. Canary Wharf now counts LK Bennett, Zara, Reiss, Kate Kuba, Whistles and Hugo Boss among its retail residents and, last month, the new extension to the Cabot Place centre at Canary Wharf took the retail space to 740,000 sq ft (68,745 sq m).

Despite the City pulling in about 2.5 per cent of the UK’s gross national product, not everyone living and working in the City earns the salary of a premiership footballer. The mix of people is rich and varied and, while there is a market for luxury retail, there is more demand for high-street fashion.

The new wave of developments around Cheapside and Canary Wharf reflect the growing role of these areas as an emerging shopping district for workers, tourists and, particularly in Canary Wharf’s case, the local catchment. Where Royal Exchange promised the West End in the City, the next stage is bringing in the high street as well.

“It’s not just about the people in the City that are earning telephone number-figure salaries,” says Hyland. “The diversity of people in the City is enormous in terms of customer profile. You need something for everyone.”