Los Angeles — December 18, 2012 – Hong Kong and New York City rank number one and two as the world’s most expensive prime retail markets, as international brands aggressively compete for limited prime locations, according to the third quarter 2012, research MarketView report from CBRE Group, Inc. (CBRE).
Global retail prime rents remain high in key gateway markets due to strong flows of international tourists seeking luxury products. The top two markets recorded significant rises in prime retail rents during the third quarter of 2012, while the next tier - Tokyo, Sydney and London - held steady.
US gateway markets have benefitted from strong tourism demand and have also recorded significant rises in prime rents. Gains were witnessed particularly in New York City, where rents on Fifth Avenue increased 17% quarter-over-quarter. International retailers are seeking flagship store space, where consumers and tourists spend liberally on luxury goods and services. As such, demand for scarce prime space remains high.
“We are continuing to see strong demand and price velocity on the very best retail corridors in gateway cities, particularly in Manhattan, where every brand must be located in order to legitimately claim a ‘global’ identity,” said Anthony Buono, executive managing director, Americas Retail Services, CBRE. “Fifth Avenue, Madison Avenue, Times Square and to an increasing extent, Soho and Meatpacking districts, are destinations for Global Shoppers. However, core rents are reaching new heights and retailers are compelled to reach new heights to acquire space.”
The global prime retail market proved resilient in Q3 2012 with the CBRE Global Retail Rent Index increasing on a quarterly basis by 2.0% and by 7.3% year-over-year. Global retailer activity remains polarized with prime retail corridor space in the best markets experiencing the greatest retailer demand. International entertainment, restaurants and fast-fashion brands actively sought prime retail space as they pursue long-term expansion strategies, while still maintaining a cautious eye on global growth and softening retail indicators.
Hong Kong is firmly established at the top of the rankings featured in the new CBRE Global MarketView, with prime retail rent levels, measured in US$ per square foot per annum, more than four times higher than fifth-ranked London and more than seven times higher than 10th-ranked Brisbane. The retail mix in Hong Kong’s key retail precincts of Central, Causeway Bay and Tsim Sha Tsui continue to be dominated by the luxury segment; however, these brands have begun to revalue their strategies amid a slowdown in spending from mainland China tourists. Meanwhile, fast fashion retailers are seeking expansion opportunities throughout Hong Kong’s shopping malls.
“Hong Kong and other Asia Pacific markets have benefited from international retailers - particularly fast-fashion, cosmetics, jewellery watch, and mid-range fashion retailers - aggressively seeking prime locations across the region,” said Ray Torto, global chief economist, CBRE. “Even despite softer demand, the limited ability of prime stock has kept prices high. Retail rental growth in the Asia Pacific region is expected to continue to ease as the economy slows, consumers cut back on discretionary spending, and retailers turn more cautious. While weakened conditions have begun to manifest in retailer and landlord sentiments throughout Hong Kong, rent growth should remain firm in prime locations.”
Tokyo – which has the third highest retail rents – continues to appeal to international retailers, and has even witnessed steady expansion demand from domestic retailers. As the supply of prime stock diminishes, rents have held high. International fast-fashion and Food & Beverage retailers were active in the Tokyo market during Q3 2012, as they were along high streets in Taipei, Vietnam, Singapore and Australia.
Sydney - ranked as the fourth most expensive prime retail market - experienced a slight rise in rents in Q3 2012 thanks to a slight rise in leasing activity as the city remains the most popular market for international retailers entering Australia. Retail rental growth in Sydney is expected to moderate in the coming months amid weak consumer sentiments. Meanwhile, international retailer groups have expressed a strong interest in Melbourne’s prime CBD locations and Brisbane has witnessed a recovery in occupier confidence and the market has recently attracted a healthy mix of high-profile national and international retailers.
London continues to rank among the top five most expensive retail markets and it is expected to experience continued upward pressure in its prime locations due to the scarcity of available prime stock. As with other major tourist markets, London continues to attract luxury and international high fashion retailers.
Mr. Torto added: “While consumer confidence on a global scale remains restrained, the global retail sector continues to gradually recover. International and domestic retailers maintained cautious, yet forward-looking expansion strategies as they identified opportunities for long-term growth. Given the current economic landscape, retailers are understandably seeking highly trafficked prime locations. Cities with international reputations for luxury shopping are especially in demand. Given the limited supply of prime space throughout these locations, prime rents will remain high in the foreseeable future.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.