New York’s Fifth Avenue continues to command the world’s highest prime rents for retail space as rental gains in the Americas and Europe outpaced those in Asia-Pacific.
According to CBRE’s half-yearly Global Prime Retail Rents report, global prime retail rents grew by 3.7% in the second quarter of 2016 from a year earlier, buoyed by consumer confidence in the US and limited supply in Europe’s top retail markets.
Europe, the Middle East and Africa saw the strongest year-on-year rental growth, with an annual increase of 6.2% in Q2 2016.
London and Milan showed some of the greatest rental growth, with much of Western Europe’s growth being driven by lack of supply in prime retail areas.
London takes the top spot for the fastest growing retail location by region as the capital registered annual prime rental growth of 53.8%, and New Bond Street ranked third most expensive retail destination in the world with rents of $1,684 per sq ft per year in Q2 2016.
Hugh Radford, chairman, central London retail, at CBRE, said: “Demand for high-quality retail space in London shows no sign of slowing and demonstrates the importance that retailers place on being in the right location. London has a number of streets that are highly desirable to retailers and supply is limited by the fact that there is restricted tenant movement in coveted prime locations once they have been secured. However, the pace of growth in rents we have seen in recent years is likely to slow for a period of time while the impact of higher local property taxes in the form of business rates are absorbed.”
Rome ranked second in the top 10 fastest growing retail locations and reported a 28.9% year-on-year growth as low availability in prime areas continued to drive rental growth, while making it difficult for international retailers to locate flagship stores.
Milan was third with 20% prime rental growth in Q2 2016 and EMEA and had the fourth fastest growth rate among the global markets.
Andrew Phipps, head of UK & EMEA retail research at CBRE, said: “Retailers are continuing to see the importance of the physical store and are benefiting from having key stores in prime areas to grow their brand. It is interesting to see that among the top five markets for rental growth are the traditional fashion capitals of London, Milan and New York, demonstrating that retailers are willing to pay high rents to be present in the most prime areas of these cities, often where supply and availability of space remains limited.”
Other European markets in the top 10 for prime rental growth included: Sofia, Bulgaria (12.5%) and Warsaw, Poland (11.1 %). Asia Pacific had two markets in the top 10: Auckland, New Zealand (23.7%) and Sydney, Australia (14%). The Middle East had one: Dubai (12.5%). And the Americas had two: New York (14.3%) and Seattle (11.1%).
The perennial top markets for global retail showed substantial divergence in the past year. Prime retail rents on New York’s Fifth Avenue between 56th Street and 58th Street increased by 14.3% in the past year to $4,000 per sq ft per year as of Q2.
Meanwhile, prime rents on Hong Kong’s Russell Street declined by 33% to $1,856 per sq ft per year amid a slowdown in tourist arrivals from the Chinese mainland and more prudent spending by locals.
“The cooling off of China’s economy has manifest itself in sharply lower rents in Hong Kong, which has allowed a new crop of retailers to enter the coveted city,” said Anthony Buono, chairman of CBRE’s global retail executive committee. “At the same time, prime retail rents in New York can remain stable, but in the near term we will see more landlord concessions to accomplish rate stability. London, however, has such scant supply of available prime space that its strong rent growth is likely to continue.”
In Manhattan, many international and domestic retailers are willing to make substantial investments to establish a presence for their brand on the world stage of Fifth Avenue’s priciest blocks. Others are content to gravitate to nearby submarkets that are less expensive but still highly coveted as retail showcases, such as Times Square, Downtown Manhattan and Brooklyn.
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