Outgoing boss of landlord Shaftesbury hails resilience of tenants as he eyes return to rent rises
(Bloomberg) — The West End of London has survived bombings, recessions and the latest global pandemic. From Chinatown to Soho, it’s one of the cultural hearts of the capital. Don’t underestimate its ability to bounce back, the boss of one of its biggest landlord says.
“What the equity market is thinking and it hasn’t really woken up to is the fact is that this could be the shallowest of recessions,” Brian Bickell, chief executive officer of Shaftesbury Plc, said in an interview with Bloomberg at the firm’s Ganton Street office in the center of Chinatown. “We may be at that inflection point now where the confidence does start to come back,” he added. “As an example here, our vacancy is back to where it normally is.”
Bickell has worked at Shaftesbury since it started buying up some of the West End’s liveliest parts in the 1980s. Now with an empire that stretches from the shops of Carnaby Street to Soho’s bars and Covent Garden, the firm is about to get even bigger with an imminent merger with neighbor Capital & Counties Properties Plc. Once that deal is approved and finalized, Bickell is due to step down.
The last few years of his tenure haven’t been easy. Since peaking in early 2018, Shaftesbury’s stock has slumped from £10 to about £4 as Covid and its economic fallout weigh on retail and leisure. Real estate investment trusts in general have underperformed in Europe in recent years, trading at steep discounts to property values, which themselves have been dragged lower by rising interest rates.
Covid Hit
Shaftesbury’s taste for “interesting tenants” has kept the area fresh, Bickell says, but also meant that Covid hit particularly hard for small outlets with no parent company to support them.
During lockdowns in 2020 and 2021 when trade fell off a cliff, the landlord offered reduced rent payments. For four months, Shaftesbury waived rent completely for its 600 or so shops, restaurants and bars, as a way to “protect both the business of tenants and the values of its portfolios,” according to Bickell.
“These are privately owned family businesses. They’ll just throw in the towel if we try and pursue them for this money,” he says.
Now, Covid curbs are gone and the new Elizabeth line is bringing more visitors into central London by train — just in time for Chinese tourists to return after years of travel restrictions. The area is seeing footfall seven days a week, while tenants are back to paying full rents, Bickell says. Shaftesbury is optimistic that it will get back to a rental growth trajectory of 4% to 5% this year.
Still, the underperformance of European REIT shares is unlikely to abate in the first half of this year, Bloomberg Intelligence senior analyst Sue Munden wrote in a note last month. The UK and euro area’s struggles with inflation will continue to force interest rates higher, while a better second half hinges on how the economy improves, she wrote.
Read more: Slump in UK Real Estate Valuations Nearly Over, Peel Hunt Says
Milder Recession
The West End has faced plenty of challenges, from economic disasters to terrorism. The neighborhood that became Chinatown was built in the aftermath of the Great Fire of London in 1666, when landowner Lord Gerrard gave permission for new houses on what is now Gerrard Street. It thrived in the 1950s, with supermarkets and restaurants springing up as British soldiers returned from the Far East with a taste for Chinese cuisine.
The occasional unexploded bomb still turns up during construction projects — a relic of World War II. Even with visitor numbers recovering, footfall and sales are still roughly 20% below the levels seen before the pandemic, the New West End Company business group found in October.
Chinatown was Shaftesbury’s saving grace during a previous crisis. After Margaret Thatcher’s government raised interest rates to around 15% to address spiraling inflation in the 1990s, rents collapsed and property values tanked. The only thing keeping the firm going was reliable rents flowing in from Chinatown, says Bickell.
Citing strong employment figures and easing inflation, Bickell says the circumstances are not like that period or the financial crisis a decade later, when Shaftesbury slashed its property values by more than a quarter. West End gems like Chinatown will prove resilient in a milder recession, he adds.
“The strange years were the years of massive capital value increases without corresponding rental increases. That was just the effect of quantitative easing,” Bickell says. “A little bit of that is unwinding but I say I don’t think we’re going to go back to where we were in 2008.”
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