Prime retail streets prove resilient to global economic downturn

19 Nov, 2008, London

• New York’s Fifth Avenue is the world’s most expensive retail address

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 $1,850 per square foot/€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.

Gene Spiegelman, executive director, Cushman & Wakefield New York said: “Through midyear 2008 Fifth Avenue consolidated its position as the world's most expensive retail address with prime rents around $1,850 sq ft. Ground level retail rents, however, broke the $2,300 sq ft barrier with the lease to Abercrombie at 666 Fifth Avenue. Fifth Avenue continues to deliver the key retail drivers of high turnover and high profile brand positioning in front of international consumers.

“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.”

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.”

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.

Rajneesh Mahajan, director – retail, Cushman & Wakefield India said: “The substantial increase in main street rents was driven by demand from existing retailers upgrading and expanding their space to create ‘flagship’ stores. Demand was further buoyed by the entry of new international and domestic retailers. The first half of 2008, however, witnessed rental stability across most micro markets with rents peaking thereby increasing pressure on store sustainability. A good customer response to the new initiatives would strengthen the country's retail footprint and help retailer’s realign their real estate strategies.”

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."

Anthea To, retail analyst, Cushman & Wakefield said: “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, 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.”

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