According to global property advisor CBRE Group, Hong Kong is the world's most expensive shopping destination as significant inbound tourist flows and continued increases in domestic wealth fuels occupier demand from international fashion and luxury retailers.
The CBRE rankings of prime global retail rents saw little change in the first quarter of 2012 (Q1 2012) compared to the previous quarter. Hong Kong remains at the top of the rankings with retail rents at US$3,864 per square foot (psf) per annum. New York retained the number two position at US$2,475 psf annum. Both cities experienced significant increases in retail rents quarter-over-quarter.
"As Manhattan's prime retail zones continue to top US retail rents, we are also seeing consumer demand for higher-end market streets holding steady there, as well as in Los Angeles and Chicago," said Anthony Buono, executive managing director, National Retail, CBRE. "Despite a still slow but improving economy, that consumer support has in turn encouraged investors to pay premium prices to buy into retail venues in these markets, as can be seen in the recently reported $700 million purchase by Vornado of the major retail space at 666 Fifth Avenue in Manhattan."
The remaining top five rankings were also unchanged from the prior quarter: Sydney (US$1,112 psf per annum) was third, followed by Tokyo (US$1025 psf per annum), with London (US$956 psf per annum) completing the top five as competition for prime locations in the city's West End contributed to an annual rental increase of 5.6%.
Globally, total retail rents increased by a modest 0.8% quarter-over-quarter in Q1 2012 as concerns over the eurozone debt crisis and weak global economic growth continued to affect consumer and retailer confidence. Despite these fears, occupier demand for prime space in many major cities remained strong, and prime space was in short supply in many markets.
The report focuses exclusively on each city's top tier retail streets, the asking rents for which represent the upper limits of rents for those cities. The asking rents in the report do not represent the overall retail rental market for the cities cited.
The Americas region led the way in Q1 2012 with retail rent growth of 3.4% quarter-over-quarter, largely due to significant demand in a handful of U.S. cities such as Washington DC, Miami and Seattle. Positive quarterly growth (0.5%) was also registered in Asia Pacific following strong interest from international, fashion and luxury retailers. Europe, Middle East and Africa (EMEA) continued to be a target for many American brands; however, the region experienced significant rental declines in some markets, including Athens and Belgrade, and averaged a quarterly decline of -0.2%.
Overall, consumers maintained a cautious approach to spending in Q1 2012 due to the uncertain economic climate, particularly in Europe, although sales figures displayed an improvement on the previous quarter. Consumer spending rose in North America, while retail sales in Asia remained positive and benefited from a strong festive period. Despite occupier demand for prime space remaining strong and improved sales on the previous quarter by 0.5%, Europe is still being affected by consumers' cautious approach to spending.
CBRE's Global Chief Economist Ray Torto tells World Property Channel, "Overall, this quarter has seen more positive aspects than the last; with improved consumer spending as well as steady occupier demand and new shopping centers bringing benefits to emerging markets. Despite concerns over the eurozone and a slowing world economy, retailer demand for prime space in major cities remains strong; however, it is in short supply in many markets. This mismatch between demand and supply means that activity levels are not as high as they could be. Equally, retailers continue to target the best locations in the more mature markets of Western Europe and the wealthier markets in the Asia Pacific region."
"Cross border retailing is also increasing as middle class populations grow in emerging markets and retailers from more mature markets seek new opportunities for growth. The growing demand for modern, high quality retail space in emerging markets has led to a boom in shopping centre development which is making it easier for retailers to enter these territories."
CBRE's Head of Cross-Border Retail Peter Gold said, "In Europe, occupier demand for prime space is still strong in spite of a very challenging consumer environment. U.S. retailers have been particularly active in seeking out new opportunities with the likes of Forever 21, Victoria's Secret and Kate Spade having recently entered, or about to enter, the region. The problem that many retailers are facing is the access to units in prime locations within Europe's top tier cities. Activity levels are therefore not as high as they could be due to the mismatch between demand and supply. With much of the space currently under construction in Western Europe outside of these main cities, this problem will not be resolved in the short term, and is putting upward pressure on rents in some locations."