Hong Kong’s Causeway Bay remains the world’s most expensive retail location for the second year running, according to global real estate consultant Cushman & Wakefield’s flagship retail research report.
Celebrating its 25th year, the report is widely recognised as the barometer for the global retail market and ranks the most expensive locations in the top 334 shopping destinations across 64 countries.
Cushman & Wakefield is at the centre of global retail and monitors and analyses the evolution of the industry and global retail trends to ensure its clients are best positioned to capitalise on future developments in the sector.
Although global retail rental growth, at 3.2%, was slightly tempered when compared to the previous 12 months (4.5%), rental values in 285 of the locations surveyed for the report (85%) were either stable or rose.
Fuelled by competition between both high-end and non-luxury retailers for limited space, Causeway Bay experienced a 14.7% growth in rental values and broke through the $3,000 per sq ft barrier for the first time in the survey’s history ($3,017 per sq ft).
After being toppled from pole position for the first time in 11 years by Causeway Bay in 2011/2012, Fifth Avenue in New York saw rental values remain static but still held onto second place in the ranking with $2,500 per sq ft – and this was almost $900 per sq ft ahead of its nearest rival: Paris’ Avenue des Champs-Élysées, which placed third with $1,601 per sq ft. However, the French location extended its lead over other locations significantly by recording 38.5% growth, the third strongest rental rise globally.
With continued demand from international luxury brands, rents in London’s New Bond Street increased by 15.6% to $1,047 per sq ft as the location jumped from sixth to become the fourth most expensive shopping street in the world, replacing Ginza ($984 per sq ft) in Tokyo which moves down into fifth place this year. The other highest climber in the ranking’s top ten was Via Montenapoleone in Milan ($906 per sq ft) which witnessed a 7.4% rise in retail rents and moved up the table from eighth to sixth.
Cushman & Wakefield’s global head of retail, John Strachan, said: “Once again, we have seen Fifth Avenue and Causeway Bay retain their titles as the most expensive retail locations in the world. But we have also seen positive growth across almost all of the top global cities as international brands continue to compete for premier positions in the world’s most highly sought after shopping streets.”
Martin Mahmuti, a senior analyst in Cushman & Wakefield’s European Research Group, said: “Economic risks remain for 2014 but conditions are expected to steadily improve across most markets. The retailers’ push towards the best and most sought-after locations will continue; however, limited supply and higher rental costs will create obstacles for some brands, leading a number to look to alternative locations in close proximity to the main thoroughfares. While cities will grow in importance, a stronger focus on the use of all channels including online will also be seen to both speed and support expansion.”
When Main Streets Across the World was first published in 1988, the most expensive retail city globally was New York, followed by Munich in second position, Tokyo in third, Paris in fourth and London in fifth.
Despite being partly affected by slower economic activity and in some cases increased retail supply, the Americas showed the strongest regional growth with prime rents increasing by 5.8%. But this was down on the 10.9% rise recorded in 2011/2012.
Prime rental growth in the US was somewhat more restrained (3.7%) compared with 2011/2012, while Canada achieved a marginal prime rental increase of 1.7%.
Colombia recorded the strongest growth among the Americas overall as values surged by 14.6%, while Argentina experienced an uplift of 11.5% over the year. In neighbouring Brazil (3.3%), retail space improved dramatically with the addition of over 40 shopping centres.
The Mexican (7.7%) retail landscape benefitted from a recovery in demand but also suffered from a shortage of high quality retail space. Trading conditions in Chile remain healthy, with positive annual retail sales growth stretching to four uninterrupted years in September 2013.
As expected, the top 10 most expensive locations in the Americas were once again dominated by US destinations, with Fifth Avenue, New York, being the costliest street. The luxury market in the US was dynamic over the 12 months to June 2013, with notable deals in the sector and significant leases taking place on Fifth Avenue with Ralph Lauren, Valentino and Cartier all signing up for space in the street.
Matt Winn, Cushman & Wakefield’s retail services leader in the Americas, said: “The economic recovery in the United States and Latin America led to another year of rental growth in the Americas. With limited development and continued interest from international retailers, asking rents grew in the prime retail areas like Fifth Avenue and there were also significant increases in a broader range of locations in New York and cities like Miami and Washington DC. Additional development in Latin America meant retailers had more choices for new store locations. As demand in the region continues to outpace supply, we expect this growth to continue in the coming year and the potential for record rents remains a possibility.”
Asia Pacific remained the focus for international retailers and this again translated into prime rental growth (4.5%) in the last year. However, the region was characterised by contrasting fortunes among retailers in different markets, slower growth generally and a greater emphasis on non-luxury retailers.
Hong Kong (21.8%) was yet again the main market behind the drive in prime rental growth across the region. Furthermore, exceptional rental increases in the three premier shopping destinations of Hong Kong propelled them into the first, second and third spots of the most expensive locations in Asia Pacific.
In China, the attraction of the market remained unchanged (6.8%). Despite slower trading in the luxury sector and an increased supply of retail space, the country saw a diverse range of new entrants and expansions from several international brands.
The slowdown in South Korean (7.2%) consumer spending had an adverse impact on luxury brands in that market, although this slack was picked up by ‘fast fashion’ brands, which saw an upward trend in performance.
Conditions and sentiment in the Japanese market (6.2%) improved considerably this year, supported by good economic growth and high retail spending. Rents in Taiwan also rose considerably (10%), due in particular to strong demand from restaurant chains and international fashion and clothing brands entering the market. Steady demand from fashion and food and beverage brands was also the catalyst behind the rise in India (2.1%).
Causeway Bay (14.7%) tops the list of the most expensive retail locations in Asia Pacific as well as globally. Its nearest challenger, Hong Kong Central, did however narrow the gap slightly, with rental values soaring by 23.3% in the last year.
Michele Woo, executive director, head of retail, Cushman & Wakefield in Hong Kong, said: “Hong Kong’s Causeway Bay remains the world’s most expensive retail location for another year and it will further bolster its position once luxury goods sales return to near peak levels. Additionally, same-day visitors from mainland China to Hong Kong are driving a rise in spending on household goods and daily necessities, as the demand for ‘convenience retail’ increases. This trend has shifted the spending pattern from just luxury to also medium-priced goods in the city.”
Rental growth in the EMEA region increased by 2.1% overall, fuelled by better economic news in Europe, greater finance availability, a very active demand from luxury retailers and improved general consumer sentiment. Specifically, there were encouraging performances from Western (2.4%) and Eastern Europe (2.6%). Out of the 33 EMEA countries surveyed in the report, only seven recorded rental falls while the other 26 saw values either stabilise or rise.
The highlight of the year in EMEA was undoubtedly France which recorded 16.3% growth in the past year. The nation’s premier shopping destinations were yet again energised by extraordinary luxury retailer demand: more than 100 luxury stores – a combination of new shops, extensions, refurbishments and pop-ups – have opened in France since 2011. Further growth in tourist numbers and limited supply also contributed to the rental uplift.
UK rental growth (6.0%) continues to be dictated by London, where the main shopping streets again outperformed the rest of the country. Luxury locations such as New Bond Street, where values surged 15.6%, and Sloane Street continue to attract phenomenal interest from occupiers – on average there are around 10 international brands competing for each store.
Norway saw the third highest growth in EMEA (16.2%), while Russia saw a similarly impressive rental rise of 15.4%. The prime segment of Austria (8.9%) continues to benefit from tourism and international retailer interest.
The survey also found the situation has improved in underperforming EMEA markets. Prime rents in countries such as Greece and Ireland, although declining by 7.3% and 7.8% respectively, did so at a slower pace than last year, while rents in other markets which fell in 2011/2012 – Bulgaria and Hungary – have stabilised or risen modestly this year (Portugal, 2.6%).
Avenue des Champs-Élysées in Paris was again the most expensive retail location in the EMEA region, recording rental growth of almost 40% over the year and widening the gap on second-placed New Bond Street in London.
Christian Dubois, managing director of retail, Cushman & Wakefield in Paris, said: “Prime streets such as Champs Elysées or luxurious destinations such as Avenue Montaigne remain more than ever a target for international retailers. They benefit from the combined demand of relatively recent brands supplementing their retail network in France, new foreign entrants expanding abroad, or historical players inaugurating refurbished formats to face increasing competition.”