LONDON — Little has changed across the high-end retail grid over the past 12 months despite a slowdown in China, a weakening global economy and an increasing number of attacks on tourist destinations in Europe and North Africa.
According to a global research report from Cushman & Wakefield that will be released today, the world’s most expensive retail real estate remains the top end of Fifth Avenue in Manhattan; Hong Kong’s Causeway Bay, and the Avenue des Champs-Élysées in Paris.
London’s New Bond Street remains in fourth place, followed by Milan’s Via Montenapoleone and top shopping thoroughfares in Zurich, Tokyo, Seoul, Vienna and Munich.
Retail properties on Fifth Avenue, from 49th to 60th Streets, are now commanding rents of $3,500 per square foot annually. The report said that by the second quarter of 2015, rents had increased 3.6 percent year-on-year on Fifth Avenue.
Cushman’s annual “Main Streets Across the World” report tracks more than 500 of the world’s top retail streets, ranking them by their prime rental value calculated using the real estate company’s proprietary data.
“Improving employment prospects, rising real wages and healthier consumer confidence in advanced economies are set to offer more positive momentum for the retail sector,” said Justin Taylor, head of EMEA (Europe, the Middle East and Africa) retail at Cushman and Wakefield.
“From an EMEA perspective, despite any economic and political uncertainties in certain countries, the retail market is expected to see further improvements. A strong retail sales growth forecast, robust occupier demand and a lack of supply in many locations means rents will keep rising in the most popular high streets. Tight availability is shaping the retail landscape, pushing the geographic boundaries of well-established high street markets outward,” he added.
The 27th edition of the report shows that rents have risen in 35 percent of streets around the world, despite slowing economies worldwide, an oversupply of oil, China’s stock market crash earlier this year, and a heightened threat of terrorism.
Cushman’s report said the strongest rental growth in 2015 was recorded in Dublin’s Grafton Street and by London’s Covent Garden neighborhood — now home to a mix of big beauty brands, independent clothing stores, high-end restaurants and pop-up shops.
Makeup artist Charlotte Tilbury is set to open the first stand-alone store for her independent brand in Covent Garden later this month.
By contrast, high streets in Russia and Ukraine experienced sharp falls in 2015, linked to the conflict between the two countries and the devalued ruble.
In Asia-Pacific, Cushman said there has been a downward pressure on rents on the back of weaker retail sales and slowing in tourist numbers in China particularly.
This has resulted in lower rents, which is creating incentives for more international luxury brands and high-street retailers to move in. Interest rate hikes by the Chinese government could impact consumer spending power, Cushman said.
Last week, Burberry said it had renegotiated its lease and downsized its largest flagship in Hong Kong, due to changing tourist and shopping patterns in the region.
On Tuesday, Louis Vuitton “strongly denied” a report that it would shutter up to a fifth of its China network.
“As announced by LVMH Group many times, Louis Vuitton’s retail strategy in China is to optimize the quality of its store network. Our aim is to offer the best service and experience possible to our clients in China,” Vuitton said. In effect, the size of Louis Vuitton’s network in China is expected to stay flat.
Vuitton occasionally shutters stores to open in better locations, renovates existing ones and relocates others. Four openings, two of them renovations, are planned for 2016, according to Vuitton.
Erwan Rambourg, managing director and global cohead of consumer and retail research at HSBC in Hong Kong, said: “In aggregate, I don’t think China has an issue of quantity of luxury stores, more an issue of quality — poor locations, unadapted assortment, etc.
“I would not bet on the luxury footprint in China becoming significantly smaller. What Vuitton is probably doing is just a clean up: a few closures, possibly a few relocations and renovations. All-in-all, I would expect much better stores rather than much fewer stores.”
Elsewhere in the Asia-Pacific, Cushman said high-profile international retailers are targeting both Australia and New Zealand, as well as Manila and its environs, Cushman said.
Theodore Knipfing, Cushman’s head of retail of Asia-Pacific, said the outlook for Asia’s overall retail market is largely positive, with retail sales growth averaging 8.5 percent over the next five years in U.S. dollar terms.
“Rising tourist numbers are spurring robust and sustained retailer demand — albeit firmly focused on prime, well-located space. Although the growth of e-commerce is notable across the region, physical stores will remain important although landlords will need to focus on improving the shopping environment and customer experience in order to compete for retailer demand,” Knipfing said.
In the Americas, strong footfall in Manhattan has helped to keep New York’s position elevated, with overseas tourists attracted to the vibrant retail environment and luxury retailers still dominating the high street — with no slowdown in sight, according to the report.
At a regional level, the U.S. alone represents seven of the top 10 most expensive cities in the Americas, with Toronto and Vancouver standing at sixth and eighth position, respectively, and Buenos Aires — the most expensive Latin American location – at number 13.
The report added that the “gateway cities of Chicago and San Francisco” have witnessed healthy growth rates and are expected to continue to expand, bolstered by solid international retailer demand.
Cushman’s Gene Spiegelman, vice chairman and head of retail services of North America, said: “The Americas region is expected to sustain a positive trajectory going forward into 2016, bolstered by a steady consumer sector benefiting from a material reduction in energy costs and stable employment expectations, especially in the U.S.
“Retailers will continue to add physical stores to support their expansion plans while at the same time optimizing their footprint to respond to the ongoing evolution of clicks and bricks. International luxury brands will continue to dominate the high street, providing a boost to the key destination cities with high exposure from tourism and strong footfall.”