Prime retail streets prove resilient to global economic downturn

19 Nov, 2008, Amsterdam

The world’s main shopping streets are proving largely resilient to the global economic downturn with retail rental levels rising or at least remaining stable in 94 per cent of 236 streets monitored. The findings are in real estate adviser Cushman & Wakefield’s 23rd annual Main Streets Across the World report which provides a global barometer of the strength and popularity of shopping streets in 48 countries.

New York’s Fifth Avenue is once again the world’s most expensive shopping street where retailers can now expect to pay rents of €12,612 per square metre of sales space per annum, an increase of 23 per cent on 2007. The most expensive streets in Hong Kong, Paris, Milan and Dublin make up the rest of the top five but London and Tokyo have dropped down to six and seven respectively. Dublin has been the best performer in the top ten with the city’s Grafton Street rising two places in the ranking to enter the world’s top five most expensive streets for the first time. Retailers entering the street can now expect to pay $824 sq ft/€5,621 sq m per annum, a rise of 5.3 per cent on 2007.

John Strachan, global head of retail, Cushman & Wakefield said: “Demand for often scarce prime retail space on the world’s main streets is being driven by a number of factors. For luxury and high end retailers, a presence on the most prestigious streets is deemed essential for brand positioning, sometimes regardless of how profitable a store might be. Such brand profile helps to drive revenue through other channels such as the internet, and sales of product lines such as perfumes and accessories which are sold more widely.”

End to explosive rental growth in the Netherlands
Baldwin Poolman, Managing Partner, Cushman & Wakefield in the Netherlands said: “The year to June recorded a healthy level of rental growth across the major cities of the Netherlands, but rents have risen at a slower rate than previous year due to the changed market sentiment. Demand has been driven primarily by international fashion retailers. Also in the Kalverstraat rental growth of prime rents decreased. Prime rents here are €5,621 per square metre of sales space per annum. With this rental price the Kalverstraat remains a class of its own in the Dutch retail market.”

Retailers continue to expand
High end international retailers are continuing to expand into new overseas markets and are generally taking a longer term view looking ahead of the economic cycle. This is most clearly the case with relatively emerging markets in all of the world’s regions – Turkey and Russia in Europe, Argentina and Brazil in the Americas, and India in Asia. In India, Mumbai’s Colaba Causeway showed the strongest growth with rents rising over 182 per cent to $269 sq ft/€1,833 sq m per annum. Six out of the ten retail streets in Asia with strongest rental growth were in India. The substantial increase in main street rents was driven by demand from existing retailers upgrading and expanding their space to create ‘flagship’ stores.

Strong rental growth in Turkey
In Europe, rents on Turkey’s main streets have all shown big rental increases with five of the top ten strongest growth locations being in either Istanbul or Ankara. Rents on the European side of Valikonagi Caddesi have increased 114 per cent over the year with rents on the Asian side of Bagdat Caddesi increasing 96 per cent. Turkey’s most expensive street, the European side of Abdi Ipekci, rises in the overall ranking from 32nd to joint 24th.

Gulsin Hakman, head of retail, Cushman & Wakefield Turkey said: “In 2008 cities with high consumer potential have grown faster than ever before. Both domestic and overseas retailers have been looking to increase their market share and consolidate their market position. Many have therefore been opening new stores on both the country's main shopping streets and in the increasing number of new shopping centres (with many of the new developments now in the smaller Anatolian cities.) This has led to higher rents which, together with the increased cost of distribution and staff salaries, has put into question the sustainability of some retailers' expansion plans."

Looking forward
Poolman: “As we close 2008, we anticipate retailers will critically assess substantial rent and capital commitments but will continue to exploit the value of limited prime main street positions in keeping with long term strategies. The subject rents may appear unsustainable at this moment in time but, placed in strategic context, these commitments represent exclusive long term opportunities for a highly competitive group of global retail brands who recognize the value of flagship real estate as an effective vehicle for brand communication. We expect this trend to continue.”

He continues: “Going forward, consumer spending is expected to slow in many markets through 2009 as the impact of the global liquidity crisis is felt on main street. The US and European markets such as the UK, Spain, Germany, Italy and Ireland face recession although some Central European markets look set to perform relatively well. Cross-border retailers will continue to look for ways to capitalize on the emerging markets over the long term, but are expected to proceed more cautiously than before in the near term hence retailers are expected to become more sensitive to occupancy costs.”

The world’s ten most expensive shopping streets 2008

Rank 2008	Rank 2007	Country	City	Street	US$/sq ft/year	€/sq m/year	% change
1	1	USA	New York	5^thAvenue	1,850	12,612	23.3
2	2	Hong Kong	Hong Kong	Causeway Bay	1,784	12,161	46.8
3	3	France	Paris	Avenue des Champs Elysees	1,134	7,732	5
4	5	Italy	Milan	Via Montenapoleone	983	6,700	11.7
5	7	Ireland	Dublin	Grafton Street	824	5,621	5.3
6	4	UK	London	New Bond Street	810	5,520	0
7	6	Japan	Tokyo	Ginza	794	5,413	0
8	8	Switzerland	Zurich	Bahnhofstrasse	729	4,972	23.1
9	9	Australia	Brisbane/Sydney	Queen Street Mall/ Pitt Street Mall	553	3,772	0
10	11	South Korea	Seoul	Gangnam Station	529	3,606	37.9

Source: Cushman & Wakefield (full ranking contained in the report)

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