Retail Rents in New York, London, Tokyo and Zurich on the Rise.
Hong Kong is by far the world’s most expensive city for global retailers, but prime rents in New York, London, Tokyo and Zurich are on the rise, according to new research from global property advisor CBRE Group, Inc.
CBRE’s quarterly ranking (Q2 2013) of the top 10 prime global retail markets saw little change relative to previous quarters; however, four of the top 10 markets - New York, London, Zurich and Tokyo - saw quarterly increases in prime retail rents, compared with only one market during the previous quarter. Historically low construction levels and fierce retailer competition for the best locations is fuelling this growth, leading to record-breaking rents in many global markets.
Hong Kong (US$4,328 per sq ft per annum) tops the rankings by a substantial margin, with New York ($3,050 per sq ft per annum) in second position posting prime rents $1,200 per sq ft below Hong Kong. Similarly, a large spread of more than $1,800 per sq ft per annum exists between New York and third-ranked Paris ($1,220 per sq ft per annum).
Despite its high rents, retailers continue to establish a presence in Hong Kong, seeking to benefit from the market’s growing luxury retail scene. According to CBRE research, 51 new retailers opened stores in Hong Kong last year and the city has the highest representation of luxury retailers of all global markets.
Joe Lin, Executive Director Retail, Hong Kong, CBRE, commented:
“Healthy tourist arrivals and lack of available space make finding an adequate unit in Hong Kong’s prime retail locations a major challenge for new and existing retailers. Units in prime locations with reasonable shop fronts and size rarely become available, leaving retailers with few choices. As such, preference for spaces with these characteristics continues to generate strong demand, supporting the market’s high - and rising - prime rent levels.”
New York displayed a 2.7% quarterly growth rate in prime retail rent levels, signifying a 22% annual increase relative to last year. Demand from international retailers remains strong in New York and tourism levels continue to drive strong retail sales activity.
In London ($1,156 per sq ft per annum), improving consumer confidence, robust sales and increased foot traffic have collectively fuelled tenant demand. In particular, the supply and demand imbalance on New Bond Street and Old Bond Street resulted in prime rents for Central London increasing by 9.1% quarter-over-quarter and 20% year-over-year, as measured in local currency.
Preference for prime space continues to impact prime rents in Zurich ($896 per sq ft per annum) where rents increased 2.2% quarter-over-quarter and 5.6% year-over-year.
The tight supply of prime space, as well as the gradually strengthening confidence of occupiers contributed to a 2.0% quarter-over-quarter local currency rental increase in Tokyo. Viewed as the gateway to Asia by many foreign retailers, competition for prime locations across Tokyo remained fierce. Domestic retailers have also expanded, with some Osaka-based retailers expanding their presence in the city for the first time.
Junichi Taguchi, Managing Director of CBRE’s Retail Services division in Japan, commented:
“Consumer demand and confidence conditions have notably improved thanks to a strengthening economy. Luxury retailers noted a positive push in demand for brand items, which have been recording high sales values in department stores since the beginning of the year.”
Prime rents in Sydney ($945 per sq ft), Melbourne ($794 per sq ft), and Brisbane ($599 per sq ft), held steady this quarter despite flat retail turnover figures.
Josh Loudoun, Senior Director, Retail Services Australia, CBRE, commented:
“Australia has continued to benefit from low vacancy rates and the limited new supply coming to the market. The influx of international retailers has also continued with both Brooks Brothers from the US and Marks & Spencer from the UK recently announcing they would enter Australia.
“Another consideration is the upcoming Federal election. History shows that retail sales following a Federal election usually show a strong short-term spike a consumer confidence lifts and this will translate to rental growth over the next 12 months. This will also coincide with a number of the ‘boom time’ leases of 2008/2009 coming up for their five year anniversary.”