Manhattan Trumps Hong Kong as World's Most Expensive Retail Market
According to global real estate consultant CBRE Group, New York's Fifth Avenue commands the world's highest prime rents for retail space as rent gains in the Americas and Europe outpaced those in the Asia-Pacific region.
CBRE's semiannual Global Prime Retail Rents Report found that prime retail rents grew 3.7 percent globally in the second quarter of 2016 from a year earlier, buoyed by consumer confidence in the U.S. and limited supply in Europe's top retail markets. Regionally, prime rents grew the most in Europe, the Middle East and Africa (up 6.2 percent), followed by the Americas (up 3.9 percent) and Asia (2.1 percent). The report covers more than 90 markets across the globe.
Prime rents are the highest achievable rents for a retail storefront in a market's best location with the best quality and specifications of space.
The perennial top markets for global retail showed substantial divergence in the past year. Prime retail rents on New York's Fifth Avenue between 56th and 58th streets increased by 14.3 percent in the past year to $4,000 per square foot per year as of this year's second quarter. Meanwhile, prime rents on Hong Kong's Russell Street declined by 33 percent to $1,856 per square foot per year amid a slowdown in tourist arrivals from the Chinese mainland and more prudent spending by locals.
"The cooling off of China's economy has manifest itself in sharply lower rents in Hong Kong, which has allowed a new crop of retailers to enter the coveted city," said Anthony Buono, Chairman of CBRE's Global Retail Executive Committee. "At the same time, prime retail rents in New York can remain stable, but in the near term we will see more landlord concessions to accomplish rate stability. London, however has such scant supply of available prime space that its strong rent growth is likely to continue."
In Manhattan, many international and domestic retailers alike are willing to make substantial investments to establish a presence for their brand on the world stage of Fifth Avenue's priciest blocks. Others are content to gravitate to nearby submarkets that are less expensive but still highly coveted as retail showcases, such as Times Square, Downtown Manhattan and Brooklyn.
"New York's high streets have gone through a dramatic evolution in recent years, with rates rising strongly amid a rather ebullient market running from 2013 to late 2015," said Andrew S. Goldberg, a Vice Chairman of Retail Services in CBRE's New York City office. "Over the past year, the market has cooled a bit, with increasing availability and more concessions, but it remains resilient. Manhattan, and Fifth Avenue, in particular, is a global showcase where the world's top brands want to be."
In terms of growth or prime retail rents in the past year, Europe is the story. Half of the 10 fastest growing prime retail rents in the past year came in European markets, led by London with a 53.8 percent increase. The few spaces that come available on London's high streets are pursued by numerous aspiring lessees, resulting in steep rents.
Other European markets among the top 10 for prime rent growth are Rome (28.9 percent increase); Milan, Italy (20 percent); Sofia, Bulgaria (12.5 percent); and Warsaw, Poland (11.1 percent). Asia Pacific landed two markets in the top 10: Auckland, New Zealand (23.7 percent) and Sydney, Australia (14 percent). The Middle East had one: Dubai (12.5 percent). And the Americas had two: New York (14.3 percent) and Seattle (11.1 percent).
Other notable U.S. markets reflected as gainers in the report include Chicago (9.4 percent increase); Washington, D.C. (8.7 percent); Denver (7.7 percent); and San Francisco (3.8 percent). The only major U.S. market to register a decline in its prime retail rent was Miami, which posted a 7.1 percent loss on tempered tourism from Latin America due to challenged economies there.