LONDON — Manhattan’s Fifth Avenue, and more specifically its stretch between 49th and 60th Streets, remains the priciest bit of commercial real estate worldwide, according to the latest global retail report by Cushman & Wakefield.
Rent costs $3,000 per square foot per year there, compared with the number two, Hong Kong’s Causeway Bay, where landlords are charging $2,878.
The Avenue des Champs-Élysées in Paris ranked number three, with prices at $1,368 per square foot per year, despite a decline in tourist numbers and spend following the terrorist attacks and changing tourist patterns.
The annual report pointed out that rental values have decreased in New York and Hong Kong as brands “balance the demands of physical and online presences,” and demand for flagship space slows.
Cushman said in 2016, upper Fifth Avenue saw its first decrease in annual rents per square foot since the financial crisis.
The report dovetails with a statement made earlier this year by François-Henri Pinault, chief executive officer of Kering, parent of brands including Gucci, Alexander McQueen, Stella McCartney and Christopher Kane.
“We are present today in the most important cities and locations in the world. Our priority is to extract more value from them,” said Pinault, as he urged his brands to increase sales per square foot.
Property consultants Cushman & Wakefield’s report covers more than 450 top retail streets. In it, London’s New Bond Street ranked fourth. Space costs $1,283 per square foot per year, and the street has seen rents rise strongly, alongside other new retail hubs such as Covent Garden and Sloane Street. Cushman said the British capital continues to be a “massive pull” for luxury brands.
The report said London saw some of the strongest rental growth across Europe and the Middle East region, with retailers willing to pay a premium in order to secure sites and capitalize on healthy footfall figures.
New Bond Street saw rents rise by 14.3 percent over the last 12 months, although that figure was outstripped by Covent Garden, where rents were up 31.6 percent over the same period. Sloane Street saw its rent charges rise 27.3 percent in the year.
Covent Garden and Sloane Street have both undergone major overhauls at the hands of ambitious property developers Capco and the Cadogan Estate. Covent Garden has recently become home to Nars, Mulberry and The Watch Gallery, while Robert De Niro is planning to open a hotel in the neighborhood.
Justin Taylor, Cushman and Wakefield’s head of retail for the Europe and Middle East region, said brands are raising the customer-experience bar. “Leading examples include Primark’s new store in Madrid and Apple’s refitted store on Regent Street in London. More and more brands are opting to offer e-commerce options alongside a physical presence,” he explained.
Taylor added that demand is strong for the right space in the right location, “and the lack of supply along the majority of Europe’s main thoroughfares is seeing rents rise further and expanding the boundaries of well-established streets. This is exemplified by the growth seen in some of London’s premier streets, including Bond Street and Oxford Street.”
The report added that Milan’s Via Montenapoleone recorded 20 percent price growth over the year to June, “reaffirming the allure of the city for both mass-market and luxury retailers.”
In the Asia-Pacific region, Causeway Bay rents are falling, which Cushman said is creating opportunity for some retailers looking to snap up units on prime pitches with good rental terms. As reported, Burberry has downsized its flagship in Hong Kong and is negotiating aggressively on rents in the city that has been suffering from a major fall in Chinese tourist numbers and from China’s crackdown on bribery.
Cushman said the country is facing “stiff competition” from the growing e-commerce market, with brands looking to create “online-to-offline platforms” in an attempt to capture the changing trend in consumer behavior. Retailers and landlords are also improving the “experience” they offer to consumers by expanding the food, beverage and leisure offerings.
Theodore Knipfing, Cushman & Wakefield’s head of retail, Asia-Pacific, said retailers continue to be cautious in their store expansion across the region due to concerns including continued global economic instability. “We see this continuing well into 2017,” he said. “When expansion does happen, the focus is typically on quality over quantity.”
In the U.S., Cushman said publicly traded apparel chains remain under “immense pressure” from Wall Street to be more efficient and this has meant closing underperforming stores, cutting overheads and improving margins.
“This trend has particularly affected the high street and mall sectors in the U.S. and it will continue heading into 2017,” the report said.
Gene Spiegelman, Cushman & Wakefield’s vice chairman, head of retail services for North America, said the larger question for next year and beyond in the region “will be the unrelenting rebalancing of sales origination — bricks and mortar versus e-commerce.”
Spiegelman said he believes the urban retail sector will continue to benefit from global brands “seeking tangible connections with the consumer, while the pressure will build upon enclosed malls and open-air shopping centers to continually enhance their shopping experience and differentiate their market positions to maintain competitiveness in the continuous advancement of the ‘bricks-and-clicks’ model.”