Demand For Luxury Goods Drives Rental Growth

14 Nov, 2012, London

Luxury retail property continues to perform strongly in Europe with rental growth for space in top luxury shopping streets up 4.5% over the year to June 2012 providing an outlet for growth in a largely subdued sector. Rental growth on these `super streets' has outpaced the growth seen on Europe's most expensive high streets which were up on average 1.7% and widened the gap with the mass market which saw just 0.5% growth. These and other findings on The European Retail Luxury sector were released today at MAPIC, in Cannes by Cushman & Wakefield.

David Hutchings head of Research at Cushman & Wakefield in EMEA said: 'Against a backdrop of economic woe, Europe's resilient `super streets' which house the world's top luxury brands, have gone from strength to strength this year resulting in a heavily polarised retail sector across the region. A successful store can be a big driver of growth and as a result luxury retailers are competing for the most coveted shopping destinations, exerting upward pressure on prime rental values. Despite recent slower sales growth, the luxury sector will remain resilient and will continue to play a vital and prominent role in driving overall performance in Europe's premier retail cities.'

Europe remains a crucial luxury market accounting for 30-40% of sales globally for most major brands. With France, Italy, the UK, Germany and Russia the top markets. More notably, it is also the most important manufacturing bases for many of the world's luxury brands.

The most expensive retail location in Europe was again the Avenue des Champs-Élysées, Paris recording rental growth of 30% over the year and widening the gap with second placed New Bond Street, London. Zurich's Bahnhofstrasse, whilst a smaller market compared to others in the top four, saw a healthy increase of 8.7% with brands such as Rolex, Patek Philippe, Chopard and Piaget all active.

The largest and most established luxury markets in Europe can be found in Paris, London and Milan. In terms of the number of luxury retail units on Europe?s top streets, Paris is the largest market with 209 luxury stores, compared to Milan with 138 and London 162.

London is home to the most diverse mix of international luxury brands with just 21% of the luxury market represented by domestic brands. This underlines London?s importance and attractiveness as a gateway city to Europe and other global regions. In contrast, of all luxury brands in Paris? top streets, 55% are French whilst in Milan, Italian brands also dominate the top streets with a share of 68%.

Tourism remains a key driver in most areas, particularly from China,Asia and Russia, favouring cultural and historic, but also accessible and high-amenity value cities such as London, Paris and Milan.

London, Paris and Milan are all seeing a significant imbalance in supply and demand - with a queue of retailers waiting for the right units on the right streets. This has led to a marked increase in refurbishment and expansion of existing stores and optimising store networks and the emergence of new luxury locations such as St James/Jermyn Street in London or the left bank of the Seine in Paris.

London
Demand for space in London from luxury retailers outstripped supply by a factor of ten to one last year. 13 deals were concluded over the year to June comprising just over 6,000sq m and whilst Italian, Swiss and French brands dominated the activity, key deals include US brand Tom Ford taking a new flagship 850 sq m on Sloane Street and British icon Belstaff taking 1,800 sq m on New Bond Street. The London Olympics provided a trading boost to already thriving luxury destinations in contrast to the disappointing figures observed in the wider London retail market over the same period.

Peter Mace, Head of Central London Retail, Cushman & Wakefield, said, 'Bond Street and Sloane Street have the broadest range of international luxury brands in Europe and will continue to hold their 'super luxury' status and experience robust demand for prime retail space. London is a natural choice for luxury retailers because of its position as a fashion hub and the rich mix of nationalities and tourists. Overseas shoppers are ensuring that luxury retail on these streets continues to thrive.'

Paris

Tourism is driving the luxury retail surge in Paris with foreign customers accounting for 40% of turnover in the city's department stores. The number of luxury hotels doubled in Paris over the last 20 years with several new five star hotels opening in 2011 including Le Mandarin Oriental.

Last year saw buoyant on activity on Paris' main luxury streets with opening of several new stores and signatures including brands such as Chloe, Armani, Balenciaga on St-Honore, Fendi, Yves Saint Laurent and Chanel on Avenue Montaigne and Berluti, Moncler, Burberry and Bally plus several others on rue Faubourg Saint-Honore.
The left bank has also emerged as the new luxury destination largely due to the openings of Hermes and Ralph Lauren flagship stores and to be followed by signature Tag Heuer, Burberry and the extension to the Louis Vuitton and the new Berluti flagship.

Pierre Raynal, Partner and Head of Retail Agency in France, 'With tourist numbers expected to grow further in the next few years Paris, one of Europe's key gateway cities, will continue to benefit from strong retailer demand. Luxury players will remain a fundamental driver of the city's property market and Champs-Elysées will remain at the heart of this, with the opening soon of a new Tiffany's flagship store for example.'

Milan

The Italian luxury retail sector continued to perform well and with strong trading in Asian markets, some brands were able to invest in the relocation or restyling or extension of their Italian stores such as Valentino in Via Montenapoleone, Milan. Over the past couple of years Via Montenapoleone has in fact been registering increased demand from the main luxury brands and it is not unusual for locations with a double frontage to cost between €7,000 and €9,000.

Thomas Casolo, partner and head of retail in-town, Italy at Cushman & Wakefield, said: 'Via Montenapoleone has always been considered worldwide as a symbol of the extreme luxury market. Landlords are now more willing than ever to secure luxury retail tenants and are looking to maximise the value of their properties and rental capacity by carrying out significant refurbishment projects such as that undertaken by Gruppo Statuto in Via Montenapoleone to develop four new stores where there are currently Burberry and Dior.'

Moscow

International luxury retailers continued to tap into Russia's strong and growing consumer base although rents remained stable over the year in Moscow's luxury sector centred in Tverskaya, Moscow. Although franchises are characteristic of the sector, brands are increasingly keen to set up their own operations and stand alone high street units, with LVMH and Richemont Group leading the way. However Prada Group also extended its presence as it opened flagship stores for both Prada and Miu Miuon Stoleshnikov Pereulok earlier this year.

According to Cushman & Wakefield's latest findings, despite greater focus on Asia Pacific and South America, Europe's status as the world's largest and most established luxury market will not change in the medium term. The premier luxury locations in France, Italy, the UK and Russia will continue to be the most sought after although the scarcity of available space will continue to encourage the emergence of new competitive destinations - often adjacent to the most established retail corridors and will also bring further investment by the luxury retailers themselves in their property, with moves towards larger and more showcase units.

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