The unstinting demand for retail properties in Europe’s prime luxury locations, coupled with the limited availability of top retail spots, has helped boost rents on a number of luxury streets over the past year.

This story first appeared in the November 26, 2013 issue of WWD. Subscribe Today.

According to research from global real estate advisor Cushman & Wakefield, while retail rents in prime luxury areas across Europe rose a healthy 5.7 percent in the year to June 2013, a number of streets notched up major gains. Paris’ Avenue des Champs-Élysées saw rents rocket 38.5 percent to $1,601 a square foot annually, making it the most expensive retail location on the continent. Meanwhile, rental levels on Paris’ Rue du Faubourg Saint-Honoré and Avenue Montaigne surged 25 percent to $889 a square foot, while levels on London’s New Bond Street gained 15.6 percent to $1,047 a square foot.

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Peter Mace, head of central London retail at Cushman & Wakefield, offered some insight into luxury retail property’s robust performance.

• As retailers tend to hold on to property in prime luxury areas, a lack of liquidity in the market makes the demand for rarely available properties intense. One jewelry house Mace is representing has been “waiting for two years” to get a spot on New Bond Street. As a consequence, retailers who want to gain representation on prime retail streets will pay tens of millions of pounds in key money — a onetime payment to an existing tenant — to take over its lease. On top of this, rental costs rise as 10 brands compete for each property that becomes available on New Bond Street. “There’s a complete imbalance of supply and demand,” said Mace.

• The popularity of Europe’s prime luxury areas among international tourists means a presence there is a must for top labels.

“Most of these luxury brands rely on international tourism [for sales],” said Mace. “And it’s not just in the summer months, it’s all the time.” That means rents in prime luxury areas outpace those in locations slightly off the tourist track, such as London’s King’s Road and Kensington High Street, which rely on spending by locals. “There, you’ve seen rents stagnate.”

• There’s increasing hunger for large “maison”-style stores in prime locations, encouraging retailers to expand their existing stores or secure bigger spaces, thereby fueling demand. Christian Dubois, managing director of Cushman & Wakefield in Paris, noted that “established players inaugurating refurbished formats to face increasing competition” is one of the factors driving rents in Paris’ luxury areas.

Meanwhile, in London, Chanel and Belstaff both opened large-scale stores on New Bond Street this year, joining Louis Vuitton’s maison, which bowed on the street in 2010. Mace said that facing competition from online retail, retailers are “trying to reinvent themselves and [make shopping] more of an experience.” Landlords are also driving this trend — Mace noted that London’s Crown Estate is striving to reduce the number of stores on Regent Street but make each unit larger, encouraging brands to carry their full product range in those stores, thereby being more of a draw to shoppers.

• Mace believes rents will continue to make steady progress in prime luxury areas, with bigger gains ahead for pockets of streets that are undeveloped. The north end of New Bond Street, for example, is being redeveloped as part of Transport for London’s Crossrail project. While rents in that area are relatively low, in 2017, when the Crossrail project is completed, Mace predicts the rents will “shoot up.”

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