NEW YORK STILL WORLD’S MOST EXPENSIVE RETAIL LOCATION AS PRIME RENTS BEGIN TO STABILISE ACROSS KEY MARKETS

Increasing Differentiation Between the “Best and the Rest” of Retail Units


Prime retail rents began to stabilise in many markets across the world in the third quarter of 2009, as economic and retail indicators started to show signs of greater stability and retailer confidence gained positive momentum. Retail rents globally fell by an average of 1% from the second quarter to the third quarter of 2009, according to CB Richard Ellis’ (CBRE) latest Global MarketView on the retail sector.

New York’s reign as the world’s most expensive retail market continued in Q3 despite a 25% rental decline over the past 12 months. Prime New York retail rents ended Q3 at THB 49,074 per square meter per month (US$1,640 per square foot per annum). Hong Kong and Paris retained their places as second and third in the global rankings, with rents of THB 29,205 and THB 25,644 per square meter per month (US$976 and US$857 per square foot per annum) respectively. Interestingly, the prime retail markets in Hong Kong, Paris, Sydney and London have demonstrated resilience to the global economic crisis, with stable rents over the past 12 months. Sydney has moved up the global rankings into fourth position; however this is primarily due to the strengthening of the Australian dollar relative to the US dollar. In contrast, Tokyo has seen an 18% decline in rents over the same period, but nevertheless maintained its ranking as fifth most expensive globally. Bangkok was in 73rd position with rents of THB 2,992 (US$100 per square foot per annum).

Peter Gold, Head of Cross-Border Retail in the Europe, Middle East and Africa (EMEA) region, commented: “Although consumers continue to take a cautious approach to spending, consumer confidence has been slowly recovering and is in positive territory in some economies. There are undoubtedly more challenges ahead for many retailers, but retailer confidence has also picked up over the course of the year and expansion into key mature markets and prime locations remains firmly on the agenda across many sectors, including grocery and value clothing retailers.”

According to a recent CBRE survey of 220 leading retailers on their expansion plans for 2010 in the EMEA region, on average 73 of the 200 retailers who are looking to expand (36.5%) plan to open more than 10 stores by the end of 2010. Twenty-five retailers (12.5%) are seizing the current market opportunity to expand more aggressively, opening 40 or more stores over the coming year. At the other end of the scale, 43% of retailers are planning to acquire no more than five stores in 2010 in the EMEA region.

Peter Gold continued: “The picture looks very different between prime and secondary retail space. With many retailers using the current market as an opportunity to ‘trade up’ to better stores and locations – as other retailers consolidate networks and create rare vacancies – a growing differentiation between ‘the best and rest’ of retail units has emerged. Prime retail rents in the top locations are generally quite stable and able to attract tenants; but secondary locations and smaller markets are experiencing rising vacancy, reduced retailer demand and falling headline rents.”
Europe, Middle East & Africa

The EMEA region continues to dominate the world’s most expensive retail markets, containing nine of the top 20 most expensive destinations. Paris, London and Moscow have emerged as the top three markets respectively in the Q3 ranking. The majority of markets saw a degree of stabilisation in prime rents over the summer, although the EU-27 Retail Rent Index decreased by 0.8% in Q3 2009, a decline of 4.0% year-on-year. Vacancy levels are generally low in top locations across the region, yet the definition of ‘prime’ has tightened in many markets. Retailers continue to demand incentives including turnover-based rents, where they feel they are in a strong negotiating position. Interestingly, with development pipelines of new shopping centres being cut across many markets, some retailers are now concerned about a future shortage of expansion opportunities in the coming years, particularly in emerging markets.
Americas

Lower interest rates and government infrastructure spending and incentives have kept consumer spending relatively stable in the Americas but down compared to a year ago. Retail market fundamentals have weakened overall, but not to the same extent as the office and industrial sectors. The region’s retail vacancy rates have increased marginally, as some retailers delay expansion and undertake strategic downsizing, but generally there have not been any drastic changes to the retail property landscape in Q3. U.S. cities continue to lead the most expensive retail rents in the Americas region. Los Angeles and Chicago made the top 20 global ranking at 11th and 15th position respectively, following New York as the most expensive global market.
Asia Pacific

The retail sector in the Asia Pacific region is recovering faster and better than expected, as government programmes and strong economic growth in many markets helped to restore consumer confidence. Hong Kong still ranks as the world’s second most expensive retail rental market, with values of THB 29,205 per square meter per month (US$976 per square foot per annum). Prime retail rents vary significantly across the different Asia markets, but in Q3 retail rents in most cities either declined at a slower rate, stabilised, or showed a slight up-tick. However, the threat of supply-side risk remains significant in certain cities in Mainland China, Singapore and India, where large amounts of shopping mall construction are expected to be delivered in the coming years. In the Pacific region, the retail sector has been surprisingly resilient this cycle, with low vacancy, strong demand and mostly stable rents.