London records highest retail rental growth as New York remains most expensive

New York’s Fifth Avenue continues to command the world’s highest prime rents for retail space as rental gains in the Americas and Europe outpaced those in the Asia-Pacific region, according to CBRE’s half yearly Global Prime Retail Rents report.

Global prime retail rents grew by 3.7% in the second quarter of 2016 from a year earlier, buoyed by consumer confidence in the US and limited supply in Europe’s top retail markets. Regionally Europe, Middle East and Africa (EMEA) saw the strongest year-on-year rental growth with an annual increase of 6.2% in the second quarter. London and Milan showed some of the greatest rental growth, with much of Western Europe’s growth being driven by lack of supply in prime retail areas.

London takes the top spot for the fastest growing retail location by region as the capital registered annual prime rental growth of 53.8%, and London’s New Bond Street ranked third with the highest prime rental levels in the world at $1,684 / sq ft during the second quarter of the year.

Hugh Radford, chairman of Central London Retail at CBRE, said: “Demand for high quality retail space in London shows no sign of slowing and demonstrates the importance that retailers place on being in the right location. London has a number of streets that are highly desirable to retailers and supply is limited by the fact that there is restricted tenant movement in coveted prime locations once they have been secured. However, the pace of growth in rents we have seen in recent years is likely to slow for a period of time whilst the impact of higher local property taxes in the form of business rates are absorbed.”

Top 10 Global High Streets By Prime Retail Rent Level:

Rome ranked second in the top 10 fastest-growing retail locations and reported a 28.9% year-on-year growth as low availability in prime areas continued to drive rental growth, whilst making it difficult for international retailers to locate flagship stores. Milan was third with 20% prime rental growth and EMEA and had the fourth fastest growth rate amongst the global markets.

Other European markets among the top 10 for prime rental growth included: Sofia, Bulgaria (12.5%) and Warsaw, Poland (11.1 %). Asia Pacific saw two markets in the top 10: Auckland, New Zealand (23.7%) and Sydney, Australia (14%). The Middle East had one: Dubai (12.5%) and the Americas had two: New York (14.3%) and Seattle (11.1%).

The perennial top markets for global retail showed substantial divergence in the past year. Prime retail rents on New York’s Fifth Avenue between 56th and 58th streets increased by 14.3% in the past year to $4,000 / sq ft as of this year’s second quarter. Meanwhile, prime rents on Hong Kong’s Russell Street declined by 33% to $1,856 / sq ft amid a slowdown in tourist arrivals from the Chinese mainland and more prudent spending by locals.

“The cooling off of China’s economy has manifest itself in sharply lower rents in Hong Kong, which has allowed a new crop of retailers to enter the coveted city,” said Anhtong Buono, chairman of CBRE’s Global Retail Executive Committee.

“At the same time, prime retail rents in New York can remain stable, but in the near term we will see more landlord concessions to accomplish rate stability. London, however has such scant supply of available prime space that its strong rent growth is likely to continue.”

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