Oxford Street shop rents 'shattered' by record deal with Spanish retailer

Stores in one of the world's most important shopping areas face huge rise in bills from landlords

Rents on Oxford Street could rise as much as 40 per cent after a Spanish retailer agreed to a record lease on London's busiest shopping street.

Desigual, a retailer selling men's and women's casualwear, exchanged contracts last week to occupy 360 Oxford Street opposite Bond Street tube station, paying a Zone A rent of just over £700 per sq ft, or £1.5m a year. Zone A rent is the cost for the prime section of a shop, closest to the windows.

Desigual's rent is a substantial hike on the £540 Zone A rent that the outgoing tenant, Disney Store, paid to landlord Prupim. It is also much higher than the highest Zone A rent on the street, which is believed to be around £575.

Retail analysts said the deal would set a precedent that landlords along the street could use when negotiating rents. Some retailers, as a result, could be facing increases of more than a third when they renegotiate their leases in their next rent reviews. It will add pressure on retailers that are fighting large rent increases on Oxford Street, one of the world's most important shopping streets.

"The Zone A rent rate on Oxford Street has been shattered by this deal," said a party involved in the transaction. "It is obviously good news for landlords and shows the latent demand for retail space on Oxford Street, but for tenants, affordability is going to be an issue. The interesting thing is going to be what the next rent review will be set at post the Desigual letting."

Shoe retailer Footlocker, which occupies a flagship store on the street, is already thought to be close to agreeing a hike in its £1.8m-a-year rent. It began rent review negotiations with its landlord, London Land – owned by a Hong Kong-based private investor – in May.

The terms, which have still to be finalised, could take the rent to more than £2m a year. This increase does not take into account the high precedent set by Desigual, as rent reviews typically lag behind the open market.

Desigual transaction will still be considered a coup as it beat three rivals – fellow Spanish retailer Mango, shoe retailer Aldo and mobile phone company O2 – to the 7,000 sq ft store. The shop will become vacant after Disney moves to a bigger store further towards Oxford Circus, previously occupied by fashion retailer Mexx.

It will be Desigual's second London store after its debut on Regent Street and its third standalone store in the UK – it is due to move into Liverpool One in October.

CB Richard Ellis, the property services firm which advises Prupim and London Land, declined to comment.