Research uncovers prime property retail locations rents boom, especially in London

Investors in luxury goods will be heartened by the latest research showing that premier retailing streets are in recovery as the world’s luxury brands seek footholds in the most prestigious locations.

The latest Global Retail Streets report from Colliers International reveals that after two successive years of lacklustre growth, the world’s top retail streets once again regained their vitality, as reflected by a general rise in rents in many of the world’s premier shopping districts.
 
As the lingering effects of the global downturn faded during the latter half of 2010, rising demand for the world’s most prime retail real estate was evident in many countries as a number of unrepresented and expanding international brands sought to establish a foothold in the world’s most prestigious avenues.

The rebound in luxury retail can be seen in the share prices of leading high end fashion retailers, all of which are up sharply since the beginning of 2010. Burberry in particular is up 124.5% and Bulgari, Richemont-Cartier, Tiffany, LVMH Moet Hennessey Louis Vuitton and PPR-Gucci are all up significantly over the past 17 months.

This surge in share prices shows that investors have confidence that high-end consumers are back to their big spending ways, according to the report.

Two features unique to high end retail are the relative health of financial centres which have recovered sharply since the lows of 2009 and tourism, which is benefiting such cities as London and New York.
 
‘With the expansion of the global economy and key pockets of robust growth, luxury retailers are increasingly looking beyond traditional locations and venturing into emerging markets previously viewed as too new or not deep enough. This trend is expected to continue along with a mix of low end, high fashion retailers and traditional luxury retailers,’ said Mark Charlton, head of research and forecasting at Colliers International.

‘Although a move to discount retail is apparent in many countries, luxury retail is benefiting from aspirational consumers. An expanding middle class, particularly in Asia Pacific and South America, will be a key source of growth for many luxury retailers. In particular, increasing Chinese tourist numbers are driving luxury goods sales in a range of major city retail destinations,’ he added.

In Europe, Paris’ Avenue des Champs Élysées saw no change over the last 12 months, with rents averaging $873 per square foot. London’s Old Bond Street also held steady at $962 per square foot. In Asia Pacific, rents in Ginza-Chuo Avenue in Tokyo held at $611 while Hong Kong’s Causeway Bay district saw rents increase by 25.6% to $1,510.

‘Amidst the surrounding gloom of the national retail picture, in stark contrast the London market continues to perform strongly. Retailers, particularly from the fashion sector continue to consider London an attractive location to drive sales and gain brand exposure. London has succeeded in allowing retailers to achieve strong sales produced largely by the tourists who have found value courtesy of the recently weakened Pound. The VAT rise to 20% in January passed through almost unnoticed during the first quarter of 2011 with like for like retail sales in Central London showing 5.8% growth within that period,’ explained Rob Fay, head of central London retail at Colliers International.

‘Such strong trading conditions have led to high demand and minimal supply, particularly for shops of 10,000 sq ft and above within prime areas. The list of entrants who have taken units of this nature over the last 12 months speaks volumes of the quality of covenant and concept.  An equally impressive set of retailers determined to open in advance of next summer’s Olympic Games are currently on the lookout for flagship’s in similar locations with a very low level of opportunities, providing good reason that London will continue to see rental growth over the next 12 months,’ he added.

In North America, most top retail corridors saw rents increase over the past year. New York’s Fifth Avenue in particular saw rents spike, increasing by $900 per square foot to $2,150, while Madison Avenue rose by a more modest $118 to $708. Chicago’s North Michigan Avenue saw rents rise by $25 to $250 per square foot, San Francisco’s Union Square district saw rents increase by $20 to $340 but Los Angeles’ Rodeo Drive registered only a small increase, rising by $2 to $425.

Canada’s premier retail avenues, including Bloor Street in Toronto and Robson Street in Vancouver, saw rents hold steady over the year while Ste- Catherine Street in Montreal saw a modest drop.