Consumer Demand for Luxury Goods and Shortage of Prime Property Fuels Rents in Gateway Markets
Hong Kong ranks as the world’s most expensive prime retail market as international brands aggressively compete for limited prime locations, according to new research from global property advisor CBRE Group, Inc. (CBRE).
Global retail prime rents remain high in key gateway markets due to strong flows of international tourists seeking luxury products. The top two markets – Hong Kong and New York – recorded significant rises in prime retail rents during the third quarter of 2012 (Q3 2012), while the next tier – Tokyo, Sydney and London – held steady.
The global prime retail market proved resilient in Q3 2012 with the CBRE Global Retail Rent Index increasing on a quarterly basis by 2.0% and by 7.3% year-over-year. Global retailer activity remains polarized with prime, high street space in the best markets experiencing the greatest retailer demand. International entertainment, restaurants and fast-fashion brands actively sought prime retail space as they pursue long-term expansion strategies while still maintaining a cautious eye on global growth and softening retail indicators.
Hong Kong is firmly established at the top of the rankings featured in CBRE’s new Global MarketView, with prime retail rent levels, measured in US$ per square foot per annum, more than four times higher than fifth-ranked London and more than seven times higher than 10th-ranked Brisbane. The retail mix in Hong Kong’s key retail precincts of Central, Causeway Bay and Tsim Sha Tsui continue to be dominated by the luxury segment; however, these brands have begun to revalue their strategies amid a slowdown in spending from mainland China tourists. Meanwhile, fast fashion retailers are seeking expansion opportunities throughout Hong Kong’s shopping malls.
Ray Torto, Global Chief Economist, CBRE, commented:
“Hong Kong and other Asia Pacific markets have benefited from international retailers – particularly fast-fashion, cosmetics, jewellery watch, and mid-range fashion retailers – aggressively seeking prime locations across the region. Even despite softer demand, the limited ability of prime stock has kept prices high. Retail rental growth in the Asia Pacific region is expected to continue to ease as the economy slows, consumers cut back on discretionary spending, and retailers turn more cautious. While weakened conditions have begun to manifest in retailer and landlord sentiments throughout Hong Kong, rent growth should remain firm in prime locations.”
US gateway markets have benefitted from strong tourism demand and have also recorded significant rises in prime rents. Gains were witnessed particularly in New York where rents on Fifth Avenue increased 17% quarter-on-quarter. International retailers are seeking flagship store space, where consumers and tourists spend liberally on luxury goods and services. As such, demand for scarce prime space remains high.
Tokyo – which has the third highest retail rents – continues to appeal to international retailers, and has even witnessed steady expansion demand from domestic retailers. As the supply of prime stock diminishes, rents have held high. International fast-fashion and Food & Beverage retailers were active in the Tokyo market during Q3 2012, as they were along high streets in Taipei, Vietnam, Singapore and Australia.
Sydney – ranked as the fourth most expensive prime retail market – experienced a slight rise in rents in Q3 2012 thanks to a slight rise in leasing activity as the city remains the most popular market for international retailers entering Australia. Retail rental growth in Sydney is expected to moderate in the coming months amid weak consumer sentiments. Meanwhile, international retailer groups have expressed a strong interest in Melbourne’s prime CBD locations and Brisbane has witnessed a recovery in occupier confidence and the market has recently attracted a healthy mix of high-profile national and international retailers.
London continues to rank among the top five most expensive retail markets and it is expected to experience continued upward pressure in its prime locations due to the scarcity of available prime stock. As with other major tourist markets, London continues to attract luxury and international high fashion retailers.
Ray Torto added:
“While consumer confidence on a global scale remains restrained, the global retail sector continues to gradually recover. International and domestic retailers maintained cautious, yet forward-looking expansion strategies as they identified opportunities for long-term growth. Given the current economic landscape, retailers are understandably seeking highly trafficked prime locations. Cities with international reputations for luxury shopping are especially in demand. Given the limited supply of prime space throughout these locations, prime rents will remain high in the foreseeable future.”
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