Globally, prime retail rents saw very little movement in Q1 2018—up just 0.79% year-over- year. Retailers across the globe continue to cautiously expand their physical store networks in search of optimal portfolios. The makeup of the top-10 most expensive markets remained unchanged in Q1 from the same period last year; however, Beijing moved up in rank to 6th from 7th and Guangzhou to 8th from 9th.
Significant rent growth has occurred in Europe over the past year, up 4.5% and driven by strong consumer confidence. Retail markets that have had little rent growth for many years are starting to rebound. The Southern European cities of Lisbon, Rome, Milan and Valencia have all seen strong rent increases, as a combination of growing tourism numbers in prime areas and limited available space take effect. In the U.K, many second-tier cities have seen strong rent increases, as retailers start to experiment with new locations to benefit from a relatively low base rent in these cities rather than secondary locations in London. Eastern European markets are seeing strong occupier demand, as retailers continue to push their brand to new markets and consumers, especially in those countries that are less impacted by strong e-commerce sales.
Asia Pacific had marginal rent growth of 0.37% year-over-year in Q1. Guangzhou saw year-over-year growth of 9.5%, driven by improving retail market sentiment and increased leasing activity. Several shopping mall developments in Guangzhou’s Tianhe District are doing particularly well, with pre-leasing levels of more than 90%. The food & beverage, automobile and luxury goods sectors are particularly active. Most markets across Asia Pacific saw no rent movements in Q1, and this is the outlook for the remainder of the year.
Overall rents in the Americas region declined by 2.04% year-over-year in Q1. Some of the largest declines were seen in Latin America, including Panama City, where tourism declines, dollar devaluation and ongoing political turmoil have driven weaker demand from retailers. In the U.S., several cities posted declines linked to increased availability in prime high-street corridors. Many retailers are revamping their brick-and-mortar strategies and are slowing their expansion, especially in high-rent locations, as they experiment with new models. These prime corridor declines do not necessarily reflect overall urban retail rents, which have been rising overall in many cases. As the population and affluence of many U.S. cities have expanded over the years, new opportunities for retailers have expanded outside of traditional high-street locations and are dispersing demand for space across the city. Some cities did see an increase in prime rent levels. Seattle, for example, saw a 40% year-over-year increase in Q1 due to increasingly affluent consumers and steady demand.
Top 10 Retail Locations by Prime Rent
Source: CBRE Research, 2018