Pedestrianisation promises more shoppers, but the economics of a West End shop are decided by rent and tax as much as by footfall

Oxford Street Pedestrianisation: The Business Case and the Bills

I have a rule about Oxford Street, which is that I go there once a year, in a spirit of anthropological inquiry, and come home needing a lie-down. So I approach the news of its transformation as an interested outsider. I do not shop there. I am, however, very interested in whether anyone can make money there.

The date is now fixed. Trade press reported at the end of September that Oxford Street will become free from cars from 26 October, when the Mayor says it will be mostly pedestrianised. He described a pedestrian plaza where flagship retail would sit alongside next-generation workplaces. The head of the West End’s business organisation, which represents more than a hundred streets and eight hundred businesses, said a pedestrian-friendly street had the potential to transform the experience for millions of visitors and strengthen its position as the nation’s high street.

The Promise

The commercial argument is well rehearsed. Shoppers on foot stay longer and spend more. A pleasant street draws visitors who would otherwise go to a shopping centre or stay at home with a phone. The West End competes with Westfield, with the internet and with every other European capital. It needs a reason for people to make the trip.

That argument has evidence behind it from other cities. Streets that have removed traffic have generally seen footfall rise.

The Arithmetic of a Shop

But footfall is one side of a ledger. On the other side are costs, and on Oxford Street they are formidable.

Rent first. This is among the most expensive retail property in Europe. A flagship pays many millions a year.

Then business rates, the property tax charged on the building’s assessed value. Because that value is so high, the bill is enormous. For large stores it can rival the rent.

The retail industry has been complaining about this for years. Before last year’s Budget, as a report on its lobbying noted, the trade body warned that proposals to raise rates on properties valued above half a million pounds could put as many as 400 large stores at risk of closure. Almost every unit on Oxford Street is above that threshold.

The Catch

Here is the awkward bit. If pedestrianisation works, the street becomes more desirable. If it becomes more desirable, property values rise. If values rise, so, at the next revaluation, do rates. And landlords, seeing fuller pavements, will ask for more rent.

The retailer may find that the extra sales are largely passed on to the landlord and the Treasury. That is not an argument against the scheme. It is a reminder that the gains from a public improvement do not automatically land with the people running the tills.

Who Benefits

Property owners most clearly. A better street is worth more. Several of the large estates and investors along it have been strong supporters, and one can see why.

The biggest retailers, who can afford higher costs and use a flagship as marketing as much as a shop, should do well.

The public purse, through higher rates in time.

Visitors and Londoners, who get a nicer street.

Less clear is the mid-sized or independent retailer. Higher rents tend to squeeze out exactly the interesting shops that give a street character.

The Vacant Units

Oxford Street has had a well-publicised problem with empty shops and with low-rent tenants of doubtful quality filling the gaps. The hope is that a revived street attracts better occupiers. I think that is plausible. It will not happen by itself. It needs landlords willing to hold out for the right tenant, and a council willing to enforce standards.

The Wider Economy

The timing is not ideal. A business bulletin this week reported confidence slipping and costs climbing while firms wait for the 28 October Budget. Consumers are cautious. Retailers are wary of committing to expensive leases when they do not know what the Chancellor will do in three weeks.

On the other hand, the West End depends heavily on visitors from outside the capital and abroad. A showpiece street is an asset in that market.

What Would Make It Work

From the business side, I would suggest three things matter more than paving.

A rates system that does not punish success. If every improvement is taxed away, the incentive to invest weakens.

Deliveries and servicing. Shops need stock. Without buses and taxis the street still needs lorries, at some hour. How that is managed will decide whether retailers love or loathe the scheme.

A mix of tenants. Affordable space for smaller British brands would make the street distinctive. Left to the market alone, it will fill with whoever pays most.

My View

I think the scheme is right. The street was not working. Something had to change, and removing the traffic is the boldest change available.

But as a business story, 26 October is the easy part. The test comes over the following years, in the lease renewals, the rates bills and the list of names above the doors. If in 2030 Oxford Street is a pleasant walk past shops that could be anywhere, it will have been a civic success and a commercial disappointment. If it has a few things you cannot find elsewhere, I might even go twice a year.

And to Finish

The shopkeeper and the taxman are old sparring partners in British comedy. The London Prat revisits them in its UK satirical news on business rates and British satirical news about shopkeepers. My running commentary on the capital’s economy is on the same site. Bohiney Magazine covers Main Street.

SOURCE: https://bohiney.com/