London’s best restaurant sites are being eaten up by chains
By Rebecca Burn-Callander
Start-up eateries are unable to expand due to a chronic shortage of affordable sites in the capital
London’s restaurant squeeze is hurting small brands as chains gobble up popular high street spots.
Prime locations in the West End are receiving up to 50 bids from rival operators, according to Peter Thomas, director of Central London retail at Savills, with between 15 and 20 bidders for sites of around 2,000 square feet, the cusp of the size of small and medium eateries.
The problem has intensified as more international chains arrive in the capital. According to commercial property agent Devono, demand from foreign eateries has doubled in the past year, and many are waiting in the wings for up to a year to secure sites in prime locations.
UK restaurant start-ups and growing brands seeking premises are suffering in this seller’s market.
Giancarlo Caldesi, who owns the Café Caldesi in Marylebone, has been in the restaurant business for 21 years.
He has recently been in talks to lease new premises nearby from landlord the Howard de Waldon estate, but has been unsuccessful every time.
“I can’t compete with the big operators,” he said.
“I’ve tried for five places but when a landlord is offered £50,000 more by a chain, they can’t say no."
According to Caldesi, the proliferation of chain restaurants in Marylebone is killing off the diversity of the area. “There was a Patisserie Valerie, then a Paul, then a Pain Quotidien,” he says. “They are all selling the same thing.”
While seeking a new site, Caldesi has simultaneously been fielding requests from chains to sell his restaurant.
“If I can’t expand my business, I will have no choice but to sell,” he says. “I probably should have sold up already but I’m too stubborn.”
It took two-and-a-half years for Boopshi founders and brothers Ed, 31, and Ben Robson, 28, to find a site for their Austrian and Middle-European fusion concept.
“We nearly gave up,” admits Ben Robson. “I had been working part-time but had to quit my job to concentrate on the search for property.”
The brothers finally secured a site on Soho’s Windmill Street a year ago through Devono, but are now dreading re-entering the fray to find a new site.
“When we started, our concept was seen as a bit 'out there’,” says Robson. “Now, we’ve proved that it works but I’m not under any illusion that it won’t still be a struggle.”
The London-born entrepreneurs can’t launch a site in a different town or city, because, as a two-man band, it would be too difficult to travel between locations.
“We know the London market, that’s our strength,” adds Robson. “We know what people want here so we have to capitalise on that.”
It isn’t just new and unproven restaurants that are struggling to find space in London.
Ceru, a new inexpensive mezze concept, was launched by two industry veterans in December last year. Barry Hilton, previously at the Yalla Yalla Lebanese chain and steakhouse Black & Blue, and Stephen Gee, who is currently chairman of Carluccios, Gaucho, Busaba Eathai and Iberica, premiered their business on the festival circuit last year and have been looking for a London site for the past eight months.
The two have viewed more than 80 properties, all of which have been unaffordable, or in an unworkable area.
“We are targeting women between 25 and 35 years old with this business so we need to be somewhere with a high footfall,” says Hilton. “We are experienced restaurateurs and with all our contacts in the industry, we still can’t find anywhere. If you didn’t have any backing and it was your first restaurant, I shudder to think how you would get off the ground.”
The Ceru founders finally got a break when West End landlord Shaftesbury gave them a pop-up space in Charlotte Street. “Only now do we have a track record so we are getting a little more interest from landlords,” says Hilton.
Savills’ Thomas has seen rents double in the past three years, and demand “rapidly outstrip supply”, but there is another reason that growing independent restaurants are struggling to find sites.
“There are places in London that 'go dark’ at night-time now because no one lives there,” says Hilton. “Knightsbridge and some other parts of town are no longer viable when you need daytime as well as evening trade.”
At the beginning of the year, Racine owner Henry Harris announced that he was closing his award-winning French restaurant opposite the V&A on Brompton Road after 12 years in business.
"The site had become unsustainable,” Harris said in an interview with a national paper. “The main cause was the shrinking residential population in what should be a saturated area. My original clients were replaced by non-doms who didn’t live there. In some apartment blocks 20pc were unoccupied – one-in-five of my potential client base. It makes a big difference.”
There are now an estimated 22,000 empty properties in London, and in a survey by the Empty Homes Agency last year, Kensington and Chelsea were found to have seen a 40pc annual increase in empty properties.
New retail developments are also reducing the amount of stock available on the market. “Look at Victoria,” says Hilton. “They’ve taken two blocks of retail out for three years while they build [the Nova development].”
Devono's director of retail and leisure, Philip Sandzer, says: "The lack of availability is partly down to the expansion, in the past five years, of a number of hugely successful restaurant high street brands such as Cote, Bills and Byron.
"There are also very limited prime retail A1 and restaurant A3 developments in London’s development pipeline, which is choking supply.”
Thomas says some new restaurant entrepreneurs may find it difficult to secure sites because of preconceptions about certain kinds of cuisine.
“When you say Lebanese or India, it conjures up a stereotype; an image of a style that has never been less true than it is now,” he says. “When you deal with landlords, don’t say burger joint or chip shop; they will run a mile. Concentrate on touchy-feely words like 'fusion’.
“Landlords want entrepreneurial and innovative businesses, they don’t actually want the multiples,” he claims. “But they will always err on the side of caution so, as a start-up, it is important to sell the strength of your concept above your financial security.”
West End businesses lose out in rush to build super-flats
By Anna White
Small and medium-sized businesses are being driven out of London’s West End as developers convert office blocks into luxury homes to attract overseas investors.
High levels of demand are forcing up occupier rates in areas such as Mayfair, Soho and Leicester Square, making the retail and entertainment hub of central London unaffordable for small British businesses.
According to commercial property agent DeVono, there are 538 companies (with 10 employees or more) looking to move into the West End and only 458 available sites.
“Residential prices are far higher than commercial, so waves of properties have been converted for financial gain,” said Adam Landau, Director at DeVono. “This strains the office market for a district in London that more often than not is the most expensive for renting offices.”
Central London is viewed by wealthy overseas speculators as a safe haven investment as they seek to acquire blocks of buy-to-let super-flats or second homes in the capital.
This trend, in combination with a perception by businesses that complicated planning laws will restrict refurbishments and expansion of existing buildings, and increasing rental values, is pushing small and medium-sized businesses out to Victoria and Paddington.
Streets prioritised by developers for residential conversion projects include Great Portland Street, Great Marlborough Street and Marble Arch.
Businesses moving out of central spots and heading east of the City include the back office of fashion house Alexander McQueen and Retailers Espirt and Agent Provocateur.
“The conversion of office space into residential is not just driving up rents in the West End” said Adam Challis, head of residential analysis at Jones Lang La Salle. “Transformation projects [such as the Land Securities overhaul of Victoria into a retail and enterprise hub] will also push occupancy rates up in surrounding areas for SME’s making it difficult for them to start up in London.”
Tenant-only agency looking abroad to be UKs No 1
Does DeVono, the UK's first tenant-only office agency, need to look overseas to grow its business at home?
Challenge: Should the company set up an overseas presence to win more business from international companies to aid a return to growth?
Small businesses often turn to exporting because their home market is either saturated or weak – or perhaps when they’re satisfied with their progress at home. Yet Robert Leigh’s tenant-only office agency, DeVono, is considering looking abroad simply to win more business in the UK.
The company, which Leigh founded in 2003 in response to what he saw as a “conflict of interest” among traditional landlord-focused office agents, doubled its turnover every year until 2008. Since then, however, revenues have been flat, at around £2.5m. Given many property agents’ grim experiences of the recession, Leigh understandably sees this as an achievement – but he’s determined the company’s return to growth will be imminent.
New divisions have been launched and bedded in, DeVono has been “hiring while others were firing” and Leigh expects the investment to be reflected in an improved top-line in this year’s accounts. How the company will achieve its main target of winning more business from big companies looking to rent or purchase new offices remains unresolved, however.
Despite a client list that has included the likes of E.ON, Red Bull, Toshiba and Autonomy, winning business from FTSE 100 companies has been the exception rather than the rule for DeVono. The problem, as Leigh and his co-directors Adam Landau and Luke Philpott see it, is that international companies prefer to use one of the giant property agencies as a “one stop shop” rather than a one-city specialist.
“Because we’re not international, it’s very hard for us to work with those larger firms,” says Landau. “It’s not a big enough issue for them to uproot the contract they have with the largest property advisory firm in the world, who serve them in the 70 countries they’re in. We’re too local.”
The frustration is compounded by the belief that they could have secured a far better deal.
“The thing we lose sleep about is, we’re looking at deals being done that weren’t good enough, and we weren’t even at the races to pitch for them because we don’t have that global mandate,” says Philpott.
Being a “tenants’ champion” allows the company to drive a harder bargain on occupiers’ behalf, Leigh says, and on significantly better terms. “If you’re a big landlords’ lettings agency based on achieving the highest rent possible, you can’t go and put a different hat on and do the opposite thing – that’s a conflict of interest,” he says.
Eight years ago, Leigh left his partnership position in a small agency, found cheap offices (“I’d be doing something wrong if I hadn’t”) and hired his friends Landau and Philpott, who “were experiencing the same frustrations in their own property companies”.
“We pioneered tenant-only representation,” says Leigh.
The London-based company quickly picked up business, but was met with “huge negativity” from the industry, he recalls.
“People just didn’t get it. It was, 'Why would you want to represent just tenants?’ The kudos in property is in representing landlords, showing off about how they achieve the highest rents. When someone says 'We’re here to do the opposite’, it’s something they can’t grasp.”
Perhaps part of their incredulity was due to the slog that’s involved in winning new business through the disruptive approach. “They can have one landlord with 10 properties and they’ve got 10 instructions,” Leigh admits. “Finding new business is a much harder graft [for us] – you have one client, one deal, and you might not see them for five years.”
Don’t landlords avoid DeVono if it’s so keen on getting a favourable deal for tenants? “We’ve got good relationships with them because we fill their buildings,” Leigh responds. “No one’s putting a gun to their head – we can’t make them do a deal that they don’t want to do.”
Diversification has helped DeVono to stay stable in a tough environment – its project management division physically handles roughly a third of its clients’ office moves, a purchasing team helps owner-occupiers to buy new premises, while a recently-launched “no conflict” tenant-only retail division is expected to add at least £250,000 of sales in its first year.
Landau says there’s also still plenty of room to grow the core business, but that might mean venturing into new markets. “We want to turn our 4pc market share into 10pc as opposed to trying to diversify too quickly.”
“There’s a lot more we could be doing but we may need to go [overseas] to win the big work here,” Philpott adds.
The question is whether to start with overseas agents, a partnership or even their own office – and choosing the right time to take the plunge.
“We don’t want to be slapdash and just put a badge on something,” says Leigh.
Landau suspects export agents would be inadequate. “We can’t expect a freelancer working in New York to be able to pick up the kind of business we’re looking for. We have to buy someone, create a name or join forces with someone to carry our name.”
Leigh believes a partnership approach would be ideal, but worries about a culture gap between UK and US property agencies, and says there are too few suitable tenant-focused companies in Europe to work with.
“Our own office is the only way I can see it working,” says Philpott, “but how many balls can you have in the air at any one time?”
If the retail division takes off more quickly than the trio’s conservative estimates suggest, going overseas might become less urgent. In a significant coup, DeVono has hired veteran tenant representative Philip Sandzer, who helped to bring La Senza and Krispie Kreme to the UK high street, to lead the new venture. “He shared our vision of conflict of interest – it’s probably even worse in retail than it is in office agency,” says Leigh.
With the retail environment extremely difficult, the directors – all in their early 30s – recognise that client selection will be critical.
“We’re looking for the next big thing we can grow with,” says Landau. “If we hit the right brand, we could achieve our £250,000 target with just one client.”
Whatever the method, the aim remains the same as when Leigh started the company with a £40,000 loan. “We’ve been doing this for eight years, but we’re still young, and we want to rise through the ranks and become the number one in what we do,” he says. “We’ve got the energy and time to do it.”