UK's Oxford Street loses lustre as retailers retreat

* Rents unlikely to rise for foreseeable future-Knight Frank

* Retail sales down 5 pct in January, 10.5 pct in July

* High rents forcing retailers to seek cheaper locations

By Brenda Goh

LONDON, Oct 5 (Reuters) - London's Oxford Street, one of world's busiest shopping strips, is suffering from flat-lining demand, signalling that the global economic gloom has spread to leading retail areas.

The two-mile stretch, on which retailers have traditionally fought to open flagship stores, had previously defied the steep decline experienced elsewhere in the UK and Europe. However, rental growth will grind to a halt this year as retailers shelve expansion plans and assess whether the high rents are justified amid declining sales.

Rents on London's second most expensive street after Bond Street rose by 14 percent in the 12 months to mid-2012, consultancy Colliers International said. The average rent of 800 pounds ($1,300) per square foot for the most valuable front section of a shop is 51 percent higher than five years ago.

Knight Frank partner Darren Yates believes that rents on Oxford Street will remain at 800 pounds or less for the foreseeable future a n d will surpass that level only in exceptional cases of larger buildings in prime pitches.

"To justify that rent they must either be producing some very good sales figures or they see a lot of value in the location as an advertisement," he said.

Though shop vacancies in regional UK locations have surged since the financial crash, the best streets of central London and larger shopping centres have fared better.

Sales on Oxford Street in the normally busy month of January fell 5 percent year on year and have been on a broad downwards trajectory since, data from the New West End Company showed.

Sales fell by 10.5 percent in July as shoppers stayed away from central London amid fears of transport chaos during the Olympic Games.

Fewer international retailers are hunting for space compared with last year, and those seeking sites are being extremely picky, said one Oxford Street property agent. The agent expects rents to stay at the mid-700 pounds level.

"The lack of overseas interest has been highlighted by Park House, where no new international brands have taken a unit," the agent said.

Park House, a nine-storey block in a prime location near luxury department store Selfridges, is the shopping street's largest development in more than 40 years and contains offices, flats and 11 retail units, eight of which are still empty, two property agents told Reuters.

Bought by a Qatari fund in 2011, the three retailers moving in are clothing brands Bershka, Zara and Urban Outfitters , all of which already have stores on Oxford Street.

"Europe's economic picture doesn't help," said Neil Saunders, managing director at retail consultancy Conlumino. "Most retailers, especially those coming from the States, will wait until things stabilize."

Crate & Barrel, Williams-Sonoma and Aeropostale

are three US retailers that have put their European expansion plans on ice.

Slowing interest comes as the list of retailers that have fallen victim to Britain's recession in the past year grows. The latest is the sports merchandiser JJB Sports , which shut almost 90 percent of its stores on Monday.

While retailers still covet an Oxford Street store, some are moving to cheaper locations such as Westfield's two shopping centres in east and west London, where rents are at least half those on Oxford Street.

Toby Comerford, of retail consultant Cushman & Wakefield, told Reuters: "Lego are in Stratford City and Westfield London, they're not in the West End. That was a question of affordability." ($1 = 0.6186 British pounds)

(Additional reporting by Tom Bill; Editing by David Goodman)

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