By Ed Ballard
The dowdy, down-on-its heels end of London's otherwise tony
Oxford Street could soon get a new lease on life with the arrival
of a commuter rail line.
Until recently, the area around Tottenham Court Road subway
station in London had largely missed out on the city's real-estate
boom. Built on the site of some of Victorian London's worst slums,
the traffic-snarled eastern end of Oxford Street has been known for
decades as a venue for rock bars, low-rent electronics shops and
strip clubs.
But investors are betting that Europe's biggest infrastructure
project--the GBP14.8 billion ($23 billion) Crossrail train
line--will draw businesses and shoppers to the area and bring
property values in line with its West End neighbors. The 73-mile
train line, slated to start running in 2018, will lift the number
of people using Tottenham Court Road station from 87,000 a day last
year to 306,000 by 2026, according to consultancy Arup Group
Ltd.
Major developments are in the works. Among the most prominent:
Almacantar Ltd. is converting Centre Point, a tower that has long
punctuated London's skyline, into luxury apartments. The 384-foot
1960s-era skyscraper looms over Tottenham Court Road station.
Derwent London PLC is midway through a 267,000 square foot
office and retail development next to the station. Last summer,
Rockspring Property Investment Managers bought a retail building a
few blocks to the north. And in January, Tishman Speyer acquired a
103,500 square-foot retail and office building across the road from
the station on New Oxford Street.
Investors are bidding up prices for properties in the
neighborhood, analysts say, although it is hard to quantify the
impact of the new infrastructure in a central London market that
has seen gains across the board in recent years.
The activity in the once-down-in-the-dumps area is a sign that
Crossrail is sparking a neighborhood rebirth. According to GVA
Grimley Ltd., 41% of planning applications lodged from 2008 to 2013
within a kilometer of a Crossrail station cited the project as a
reason for the development.
"It has been a very unloved, neglected area," said Kathrin
Hersel, development director at Luxembourg-based Almacantar,
developer of Centre Point. "An area this central should be so much
better."
But there are risks for the investors counting on the new
traffic. They could wind up losing if they move too early or
misread the demographic of the new commuters expected to come to a
newly served area.
Also, new public transportation sometimes can't make up for
other negatives in an area that depress property values.
"It is clear is that new stations can deliver value uplift,"
said the Crossrail as Catalyst report published last year by the
Future of London, a nonprofit urban policy group. "What is also
clear is that there are no guarantees."
Overall, demand for London real estate has soared in recent
years thanks to the scarcity of high-yield investments with
interest rates stuck at historic lows and the city's perceived
safety as a place for wealthy people to park cash. A shortage of
new houses and offices has kept demand high.
Amid the boom, Tottenham Court Road has been playing catch-up.
Its stagnation was partly the result of the uncertainty caused by
Crossrail's decadeslong planning process, according to Phil Cann,
head of U.K. retail at CBRE. Before the project was approved,
planning restrictions along the route kept landlords and retailers
from investing in their stores, "placing property decisions in
limbo," Mr. Cann said.
Centre Point, for example, has never been fully occupied and was
briefly home to squatters in the 1970s. "Commercially, nothing has
gone right for the building," whose floors are inconveniently small
for big companies, Ms. Hersel said.
Almacantar now has upscale hopes for Centre Point, which it
acquired for GBP120 million in 2011. Homes will cost from GBP1.8
million for a one-bedroom apartment to GBP55 million for the
five-bedroom penthouse.
Ms. Hersel said Tottenham Court Road's shabby reputation will be
no deterrent to buyers. "With Crossrail, and all the changes in the
area, I don't think there should be a discount," she said.
The east-to-west Crossrail line, which includes 26 miles of new
tunnels, will speed up travel from commuting districts across a
swath of southern England. Alongside Tottenham Court Road, urban
hubs attracting new investment include Paddington in west London,
Farringdon in the tech belt neighboring the City, and Canary Wharf,
the finance district in former docks to the east.
Increased foot traffic promises to lift retail rents. According
to Savills, retailers paid GBP900 a square foot for the best space
at the western end of Oxford Street in the fourth quarter of 2014,
a 57% increase since 2009. Rents at the Tottenham Court Road end of
Oxford Street were GBP615 per foot, up just 37% in the same period.
Rents on Tottenham Court Road itself are lower still.
Jared Hart, managing director at New York-based Thor Equities
LLC, said the timing of expiring leases that coincide with the
arrival of Crossrail were "a big factor" in Thor's decision to buy
105-108 Oxford Street for GBP46 million last month, at an initial
yield of 2.9%. He said Thor expects to double its rents when leases
are renegotiated in 2018 and 2019, in time for the extra customers
being delivered by the train line.
"We're targeting around GBP800 a square foot. We think that's
easily achievable," he said.
Peter Ferrari, chief executive of Ashby Capital LLP, which last
year began a GBP100 million retail and office project at One
Bedford Avenue next to Tottenham Court Road station, said rents in
the area would soon be rise nearer to what properties bring on the
west end of Oxford Street. "We'll certainly see a closing of the
gap," Mr. Ferrari said.
But not everybody is convinced. Analysts at Savills said the gap
in rents between the west and east of Oxford Street could widen
before it closes. Although some stores, including Zara and Primark,
have set up shop on the eastern end, the area's reputation and the
amount of building work are still deterrents for potential tenants,
said Marie Hickey, Savills' director of commercial research.
"To go there now, retailers have to take a leap of faith," Ms.
Hickey said. "They have to believe in the Crossrail story."
Write to Ed Ballard at ed.ballard@wsj.com
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