Writing in Fleurets’ latest On Market magazine, Graham Campbell – Head of Restaurants at Fleurets – offers insights into the current Central London market for restaurant property.
During the last 12 months the Central London market has experienced a strong surge in demand from both home grown and international operators. The competition for suitable properties has pushed rental levels in certain locations to the point where some of the mid-market operators are finding it increasingly difficult to compete with the new higher end entrants, many with money to burn.
Lack of supply
This situation has been exacerbated by a commensurate lack of supply. Property is not a liquid commodity and any readjustment to redress any imbalance takes time. The nature of the planning system, combined with a legacy of reduced developer activity post recession, has meant that new restaurant opportunities are still relatively scarce.
There have been a few notable exceptions such as Crossrail at Canary Wharf, the redevelopment of Kings Cross, as well as a number of individual landmark City Schemes such as the Sky Gardens at 20 Fenchurch Street, but supply has certainly not kept up with demand.
Pressure on existing restaurant stock
Inevitably this has increased the focus and pressure on the existing restaurant stock with premiums in the sector likewise reaching new highs, and there appears to be no respite for the time being.
In terms of the prime central locations, I believe we can expect a continuation of the current trend favouring higher end offers, which operate a business model more conducive to coping with the increasing financial pressures that the current market engenders.
Alternative strategies and locations
Those operators who find themselves priced out of their desired first choice areas are having to adapt and consider alternative strategies and locations. The strategic response will vary depending on the nature and market place within which each individual brand operates.
Some will focus on the regions and others perhaps on International expansion, but within London the ripple effect created by increasing cost is forcing operators to look to new previously untried areas to deliver the expansion plans expected by their ever pressing financial backers.
Many operators have widened their focus from the traditional safe heartlands of the West End, Covent Garden and Soho, to areas such as Fitzrovia, the City and previously more unfashionable suburbs which offer more affordable opportunities and a pipeline for expansion.
Suburban centres
For example, suburban centres such as Ealing, aided by the forthcoming attraction of Crossrail, is particularly hot and has seen the arrival of Bills, Five Guys, Wagamama, Tinseltown, Turtle Bay and Richard Carings’ Limeyard within the last 12 months, complementing an already existing strong restaurant line up. Whilst still a few years away from delivery, Land Securities proposed redevelopment of the former Empire Cinema site will further underpin Ealing’s growing status as a leisure destination and deliver further restaurant opportunities adding fuel to the fire.
Other centres are such as Brixton, which, whilst having a strong history in street food, was a location that until recently was absent from the requirements list of virtually all key operators but is now seeing its star rise. It was the birthplace of Honest Burger which is now establishing itself as one of the key players within the London Burger scene and has more recently welcomed other new arrivals, most notably Wahaca, who have refurbished the old Railway Hotel in Atlantic Road.
A similar story is being played out in many previously unfashionable suburbs, including Balham and Tooting to name but a few.
Indeed former outliers such as Shoreditch and Hackney which were once off limits are also now very much on the radar and are proving particularly attractive to the new emerging brands, seeking to exploit more affordable locations and which also sit more comfortably with their alternative image.
Proliferation of new brands
We are fortunately in a period where we are experiencing a proliferation of new brands looking to establish a foothold within the market. Many of the newer, perhaps edgier brands, can and will benefit from establishing their identity and roots in new emerging areas, where their perceived independent nature sits well with the cool progressive image that locations such as Shoreditch, Dalston and London Fields now confer. The recent news that Foxlow are to open their second restaurant in Stoke Newington is indicative of this trend.
Casual dining brands
The sector of the market which arguably faces the biggest challenge within London is the established casual dining brands. Their business model whilst able to work very successfully in many tourist and other retail centres will, in the current climate, struggle to compete in a market with a backdrop of rapidly increasing rents. They lack the operational flexibility of some of the new emerging offers, adopting a more corporate, fixed approach to their property requirements.
As with any situation where competition becomes more intense, to ensure that they can continue to compete, they will need to broaden their horizons and consider cheaper properties with perhaps less desirable layouts, with a greater emphasis on floor space over first floor or basement than they may have previously considered.
Landlord’s perspective
From the landlord’s perspective they increasingly have an embarrassment of riches with operators clambering for the available properties in their portfolio. They now have the privilege of choice and can afford the luxury of focussing on the quality and distinctiveness of operation, with many now looking to create a tenant mix which is both more eclectic and less corporate in nature.
This naturally mitigates against the more well known mass market brands, not only financially but in respect of their operational style. It is increasingly a potential double bind that further restricts their ability to expand.
Generation Y
Whilst there is still an opportunity for these brands to pursue expansion into the more mature and established suburbs, they arguably lack the element of cool and independence to be able to be at the forefront of the newer suburbs inhabited by the younger Generation Y who by their nature are instinctively more likely to reject the old corporate image in favour of the aspiring independent.
London to burn brightly
As the next phase of expansion plays out over the next few years, the one thing however that we can be certain of is that London will continue to burn brightly. Ultimately we will end up with a more diverse market, both operationally and geographically, which will be to the benefit of the consumer at large.
To read more about the leisure property industry, please download the magazine On Market from Monday 9 March here
On Market is a comprehensive review with topical and informative articles from both experienced Fleurets staff and from external trade organisations, to inform and advise, including a round up of property availability nationwide, broken down by region and by sector that displays the extent and variety of opportunities on the market.