Be generous to those Fifth Avenue merchants this holiday shopping season: They’ve got a helluva rent to pay. According to a new CB Richard Ellis report, Fifth Avenue remains the world’s most expensive retail destination, with rents reaching $2,200 a square foot annually, more than 75 percent higher than in Hong Kong, the second most expensive.
Full release below:
Retail Rents grow in global strategic destinations
CB Richard Ellis’ latest Global Retail Rents Survey points to polarization between primary and secondary retail locations during the economic downturn
Los Angeles – November 18, 2008 – Retailers are focusing on some of the major global fashion capitals, pushing rents in the world’s most expensive retail locations even higher, according to CB Richard Ellis’ (CBRE) latest Global Retail Rents Survey. Some smaller and secondary retail cities continue to see strong levels of growth; however, global fashion capitals such as Hong Kong, London and Los Angeles now sit alongside these markets in the company’s top 25 fastest growing retail rents index, while simultaneously claiming some of the most expensive retail rents in the world.
Despite deteriorating economic conditions, the retail sector has to date continued to perform relatively well. Half of the markets surveyed saw retail rental growth in the past year (ending Q3 2008), with 65% of those seeing increases over the last six months. New York’s 5th Avenue remains the world’s most expensive retail destination, with rental values reaching $2,200 per square foot, more than 75% higher than Hong Kong, the second most expensive location. Also making the top five most expensive retail destinations globally are Moscow, London and Tokyo.
Demand is coming from retailers that are performing well in the current market—such as luxury brands—but also from retailers who are reining in wider expansion plans in response to weakening consumer spending, instead focusing on longer-term strategic locations, rather than new destinations.
Although rents have risen in many key cities, the slowdown in consumer demand has inevitably struck some retail markets around the world, resulting in falling rents. In cities such as Tokyo and Madrid, where rents fell by 5% in the past six months, retailers are now beginning to take advantage of their core strength, with landlords becoming more open to rental negotiations. Despite growing downward pressure, retail rents in these cities remain some of the highest in the world (Tokyo 5th, Madrid 21st).
Ray Torto, Chief Global Economist, CB Richard Ellis, said: “It is easy to assume that falling consumer confidence and financial market turmoil across the globe are striking all retail stores, but the CBRE survey, together with sale figures from retailers, is showing that we have a barbell market. Our analysis indicates that the upper end is holding up well and the same is true for lower-end, non-discretionary retailers.”
North American cities continue to dominate the most expensive rents in the Americas region. Following New York, Los Angeles ranked tenth overall as the next most expensive destination, with San Francisco, Toronto and Vancouver as the other North American cities to make the top 50. Miami, Montreal, Philadelphia and Washington also join Los Angeles and New York among the fastest growing retail markets, although demand continues to be restricted to prime sectors.
“Growth rates are indeed slowing, but demand for top-end retail space—especially in markets like New York and Los Angeles, with prime fashion districts—is the key retail driver in many cities,” said Anthony Buono, Executive Managing Director of Retail Services, CB Richard Ellis. “Many retailers see prime space as the best long-term business opportunity in an uncertain market.
EMEA continues to dominate the most expensive retail hot spots, containing 33 of the top 50 premier destinations. Cities in the EMEA region also dominate the fastest-growing retail rents. Fifteen of the top 25 fastest-growing retail destinations sit in EMEA, with Tel Aviv, Oporto, Abu Dhabi, Valencia and Lyon topping the global list.
Peter Gold, Head of Cross-Border Retail in the EMEA region for CBRE, noted that retailers who have a particular point of differentiation within their market—either based on product or price—are likely to succeed despite the tougher overall economic conditions. “They will consequently grow market share,” he said, “and ultimately help sustain rents in key cities.”
Asia Pacific’s presence in the top rankings continues to be prominent, holding seven of the top 20 most expensive destinations. The scarcity of prime units continued to push rental increases in many markets, with Guangzhou, Shanghai, Hong Kong and Singapore all registering growth over the past six months. Guangzhou continues to be the most expensive Chinese city, having jumped significantly in the ranking from 22nd in Q1 2008 to 13th in the current ranking.