LONDON — When it comes to growth in the global retail rental market, the Americas region is leading the charge in terms of the most expensive and fastest-growing rents. That’s according to Cushman & Wakefield’s Main Streets Across the World report for 2014, which the global retail adviser releases today.
While rental values in prime retail areas globally rose at an average of 2.4 percent in the 12 months to September — with what the firm called “volatile and somewhat subdued economic activity” impacting some markets — the Americas region rose 5.8 percent, with rents in the U.S. increasing 10.6 percent in the year to September.
New York’s Upper Fifth Avenue became the world’s most expensive retail location, supplanting Hong Kong’s Causeway Bay in the survey, with rental values of $3,500 a square foot per year, while San Francisco’s Union Square was the location that saw the strongest growth globally, with rents up 30 percent in the year to September to $650 a square foot per year. New York’s Times Square, Madison Avenue and Lower Fifth Avenue are also among the world’s top ten most expensive locations, along with Causeway Bay — at number two this year — Central and Tsim Sha Tsui in Hong Kong; Avenue des Champs Elysées in Paris; New Bond Street in London and Pitt Street Mall in Sydney.
“The U.S. economy remains strong and remains a safe haven for investors, you see that in places like New York,” said Matt Winn, head of retail for the Americas and global retail chief operating officer at Cushman & Wakefield in a telephone interview, noting that investors seeking a stable home for their capital are drawn to investing in retail in established markets such as the U.S..
He cited the retail condominium at New York’s St. Regis Hotel, which was sold earlier this year to the Vornado Realty Trust and Crown Acquisitions for $700 million by Compagnie Financiere Richemont, after the luxury goods firm acquired the property for around $375 million in 2012. “I think it’s part of the rise of institutional ownership on these urban main streets,” said Winn, on what factors are boosting the value of property in prime areas. “[Investors are] looking for those prime locations to lock in the best properties. So you’ve got competition from these institutional owners, from the brands…that are buying the same real estate and then from the traditional, high net worth families that live in the cities…all competing for product.”
And the growth of retail rental values in San Francisco’s Union Square reflects the area’s status as America’s “technology hub…and all of the wealth that’s generated by those industries,” said Winn. “You start to see those rental values rise, as [retailers] look to tap into that new-found wealth,” he said. Winn noted that a varied group of retailers are looking to the west coast. “Traditional luxury doesn’t always hold with the way those tech investors tend to spend their money,” he said, noting that while luxury names are opening there, they’re balanced by labels with a focus on contemporary or active clothing, such as Nike.
Elsewhere, European rental values saw a 2.3 percent rise in the year, with Paris’ Avenue des Champs Elysées the sixth most expensive global location, with rents of $1,556 per square foot per year, and London’s New Bond Street the eighth most expensive, with rents of $1,216 per square foot per year. Winn said that global uncertainties, such as the recent tensions in Ukraine, can lead to brands opting to invest in prime, established retail markets, rather than emerging markets. “It’s about confidence — [global tensions] put those prime retail spaces in demand, in a way that you don’t see if people are willing to go into emerging markets. [Retailers] can weigh the risk-reward of getting a higher yield in an emerging market, versus just locking in their return on a prime retail space,” he sad. “I think people are saying, ‘I’ll take [a] two percent [return] and certainty right now,’ because of some of those global events,” said Winn.
The report noted strong growth in rental values in Portugal, Ireland, Spain and Greece, in contrast to sharp falls in those countries in previous years. Turkey saw the strongest growth in retail rental value in the EMEA region, rising 15.6 percent, which the firm attributed to “healthy consumer spending, an expanding middle class, better quality retail space and the arrival of more international retailers.” The Asia Pacific region rose 3.6 percent, while the Middle East and Africa dipped 7.1 percent, which Winn said he believed was in comparison to strong growth in regions such as Dubai in previous years. “You didn’t have large scale developments [in the past year],” said Winn. “A less than ten percent decline to me shows a sign of a stable market, rather one that’s in hyper growth, the way [the region] has been for the past few years.”
Another specific retail location that saw rapid growth over the year was the Shopping Centre mall in Bogota in Colombia, with a 22.2 percent rise in retail rental values over the year. “[Colombia] is a pretty mature consumer culture and with the idea that [the political situation] will be more peaceful…[there are] huge opportunities,” said Winn, who noted that a number of fast fashion retailers are plotting moving into the area. Along with Colombia, he added that the firm is also watching emerging middle class markets such as Indonesia and Vietnam. “It’s the growth of that middle class that’s driving retail development…in those emerging markets,” said Winn.