September 20, 2018

Annual Change in Prime Retail Rents (Q2 2017- Q2 2018)

GLOBAL

0.7%

AMERICAS

-0.7%

APAC

2.3%

EMEA

1.1%

Source: CBRE Research, Q2 2018.

 

Rent Increases in EMEA & APAC Offset by Economic Challenges in Latin Americas

 

Prime retail rents in local currency grew by a modest 0.7% globally year-over-year in Q2 2018, largely driven by gains in the EMEA and Asia Pacific regions. The Americas registered an overall 0.7% decline in prime rents, although the results by country were quite varied.

Latin American markets contributed significantly to the overall year-over-year decline, driven by continued currency fluctuations across the region that have lowered tourist flows into the major cities. Panama saw a 25.0% year-over-year decline in prime rents and Buenos Aires saw a 12.2%, decline, reflecting the ongoing economic issues in Argentina. Sao Paulo, on the other hand, posted year-over-year growth of 5.0%, aided by ongoing economic recovery and declining vacancies in the retail sector.

In North America, Canada showed mixed results, although overall demand has been strong. Prime rents in Toronto were down 6.0% year-over-year, but Montreal posted significant growth of 13.6% as demand for prime locations increased. Across the U.S., most cities showed stability, with eight of the 12 tracked markets posting no year-over-year change. Seattle registered the country’s highest year-over-year growth of 27.3%, driven by strong population growth and an influx of tech-sector employees into the downtown residential core. 

In Asia Pacific, prime rents increased 2.3% overall year-over-year. Rents were unchanged year-over-year in most markets, except for significant increases in Guangzhou and Mumbai, and a slight decrease in Taipei and Wellington. Rents in Wellington saw their sharpest drop since 2016 (-2.5% year-over-year) due to the weak performance of apparel retailers in prime areas. Taipei’s retail market has seen very little expansion in recent years although rents have held steady until now. The prime street of Zhongxiao East Road has faced increased pressure due to vacancy and competition from the Ximenting area, leading to re-pricing of rents. 

Guangzhou recorded 19.1% year-over-year growth, as shopping malls in the Tianhe District are performing well. The food & beverage and automobile categories were particularly active. In India, rent growth of 4.0% in New Delhi and 20.0% in Mumbai were in part driven by pent-up demand, they also were a result of limited space becoming available in premium malls and deals being done at much higher rates than the market average.

Steady retail sales growth in Asia Pacific supported an uptick in leasing activity in Q2. Luxury retailers continued to perform well, especially in Japan, where strong inbound tourism and spending by high-net-worth individuals supported steady leasing demand. In China, following the government’s recent relaxation of import duties on consumer goods, several international luxury retailers lowered prices—a move that could trigger other global brands to follow suit and may stimulate domestic luxury spending. China, Hong Kong and Singapore have performed better than expected this year on the back of improved retailer sentiment and a recovery in visitor arrivals. Continued rent growth is forecast for these markets. Overall, Asia Pacific rents are expected to remain stable in H2 2018, as weaker growth in the Pacific offsets solid gains in Asia.

In EMEA, rents were stable overall in Q2, although a few European markets saw rent growth driven in a large part by improving consumer sentiment in Southern Europe. Athens, Milan and Rome continued to see rent growth due to resurgent tourism and recovery of rents in markets where developers have little appetite to increase prime retail supply. In Bucharest, retailers are driving rents higher, as brands continue to push into new markets in their search for under-satisfied consumer demand. However, rents decreased in Istanbul prime centers, as political and economic uncertainties continue to impact occupier demand and retail investment appetite. 

The 10 Most Expensive Retail Locations (Ranked by Q2 2018 prime rent on a U.S.$ per sq. ft. per annum basis)
CBRE-RTL_GPR-TopMetros

Source: CBRE Research, Q2 2018.

Regional and Global Percent Changes

Aggregated changes in prime retail rents both at the global and regional level are based on a weighted average of the rental rate change (local currency) in the individual cities. The weighting for each city is based on the Functional Urban Area’s (FUA) gross domestic product (according to the OECD definition). For cities that are not covered by the OECD, we use Oxford Economics estimates.

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