Retail rents in the world’s most expensive markets are expected to rise further in 2014 due to a shortage of prime available locations and a lack of new development, according to new research from global property advisor CBRE Group.
CBRE’s quarterly ranking of the world’s prime global retail markets saw little change in Q3 2013 with global and hot-growth markets continuing to lead the list. Retailers across all markets continue to target high-end shopping areas and international tourists.
Hong Kong (US$4,333 per sq. ft. per annum) remains the world’s most expensive retail market by a substantial margin. Hong Kong’s retail houses the highest representation of luxury retailers among all global cities. With a healthy tourist market and a lack of available space, finding an adequate unit in prime retail locations is a major challenge for new and existing retailers.
A large rental spread also exists between New York (US$3,150 per sq. ft. per annum) – where prime rent along Fifth Avenue is at record levels – and the two leading European markets Paris (US$1,426 per sq. ft. per annum) and London (US$1,275 per sq. ft. per annum). The gap between the top four markets and the rest of the top 10 widens significantly.
While the top cities continue to hold their leading positions, there was some movement lower in the top ten rankings. Rents rose in Zurich (US$945 per sq. ft. per annum) and fell slightly in Sydney ($910 per sq. ft. per annum), resulting in the cities switching positions this quarter.
Raymond G. Torto, Global Chairman, CBRE Research, said: “The rate of growth of prime retail rents, while positive, showed signs of slowing in Q3 2013, as retailers exhibited cautiousness, even as they position their business for the future. Given the shortage of prime locations and prime properties, rents will likely continue to rise in 2014 albeit at a slower pace.
“Retailer demand in Asia Pacific is being driven by fast-fashion retailers that continue to enter new markets and introduce sister brands to cities such as Hong Kong where they are already established. In the US, rents are at record levels in New York along Fifth Avenue and there is strong demand for prime space in Union Square in San Francisco and on Lincoln Road in Miami. Meanwhile in Europe, the demand for flagship stores remains strong in London, Paris, Moscow and Zurich among other cities.”
While high and rising rents can only be mitigated by more development, there is little prime retail space in the pipeline. In Western Europe, development activity remains limited, although there is some discussion surrounding the redevelopment of existing projects. However, there are notable exceptions, with two large projects set to open in Paris and a significant pipeline planned in France over the next three to four years. While there is no short-term development in London, there is a major project in the southern suburb of Croydon and a planned redevelopment of parts of eastern Oxford Street associated with the new Crossrail station.
In the US, the level of shopping centre space under construction remains historically low. A notable trend in these cities is the emergence of smaller, “city format” stores from major big-box retailers such as Wal-Mart (Wal-Mart Neighborhood Market) and Target (City Target). However, these developments are not expected to mitigate the high prime rents seen across the US.
Asia Pacific has significantly more development underway both in the mature and emerging markets, with new completions in the region totalling 3.4 million sq. ft. in Q3 2013. Around half of this development is located in emerging markets such as Manila and Bangkok. In 2013 to date, 13.4 million sq. ft. of new retail stock has been delivered to the market. The biggest new addition was the 818,282 sq. ft. Rock Plaza mall in Guangzhou – the only major new mall completed among China’s major markets during Q3 2013. Around 124.2 million sq. ft. of new retail space is under construction in Asia Pacific as of the end of the quarter, of which 43.9% is located China. This includes 35 projects in Shenzhen.
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