Prime retail rents have fallen in almost every region across the world as the global recession impacts consumer sentiment and retail sales, according to new retail research from CB Richard Ellis (CBRE) in its Global Retail MarketView report.
Demand for retail space has declined in most markets as consumers cut back spending and unemployment continues to rise in many countries. Emerging and less established markets have been significantly affected.
Buenos Aires saw the largest annual decline in retail rents y-o-y, with a drop of 37%. This is followed by Warsaw (33% decline) and Washington DC (26% decline). While some markets have continued to experience y-o-y increases in retail rents, in many cases the current pressure is downward.
Prime retail rents represent a typical open-market headline rent that an international retail chain can expect to pay for a ground floor retail unit (either high street or shopping centre depending on the market) of the highest quality space in the best location in a given market.
Despite a 10% y-o-y rental decline, New York remains the world’s most expensive retail destination, with rental values totalling US$1,800 (RM6,399) psf per annum. New York’s retail rents stand at nearly double those of Hong Kong, which ranks No 2 globally with rents of US$975 psf per annum. In an interesting switch, Moscow has superseded Tokyo in the ranking, moving into third place at US$790 psf. Paris and Tokyo followed at US$776 and US$771 psf respectively, making up the top five most expensive retail locations.
London ranked No 6 in the survey at US$677 psf per year, followed by Sydney (US$624) and Zurich (US$612). Los Angeles was No 9 at US$600 and San Francisco was No 10 at US$540.
Moscow rents had the biggest drop among the top 10 cities from a year earlier, falling 20%. Tokyo fell 10% while Hong Kong, Paris, Sydney and Zurich were unchanged, according to CBRE. San Francisco rents rose 20%, London increased 7% and Los Angeles rose 4%.
Nick Axford, head of EMEA Research and Consulting at CBRE, says in a press release on June 30: “With unemployment rising and consumer confidence and spending weakening across most parts of the world, most retail property markets are experiencing reduced demand from retailers and an increase in the number of vacant units, which is in turn affecting rents.
“Some retailers are using this as an opportunity to take advantage of the weakening market conditions to negotiate more favourable lease terms. Landlords are keen to avoid vacancies, and in some circumstances, this makes them more willing to compromise with tenants who are in a position to leave. However, landlords tend to hold firm on the best space in the belief that any empty shops will be quickly taken up. More profitable retailers are actually jumping on rare opportunities to move into prime units whenever vacancies emerge in top high-street locations,” Axford adds.
Europe, Middle East and Africa (EMEA)
Moscow, Paris and London top the retail rents ranking in the EMEA region, with Moscow now the third most expensive market in the world. The threat of weaker demand and rising vacancies caused the EU-27 Retail Rent Index decrease by 3% during the 1Q2009, a decline of 1.2% y-o-y. The rate of European rental growth has been steadily declining since peaking at about 5% q-o-q in mid-2007. Prime retail rents fell by 10% or more q-o-q in several markets, including Dubai, Barcelona, Athens and Dublin. Retailer demand is down in most EMEA markets but there are some bright spots, as many discount and food retailers have announced major expansion plans. In some markets, retailers are also known to be negotiating with landlords to secure rent discounts or more favourable lease terms in exchange for agreeing to extend their leases.
US cities continue to lead the most expensive retail rents in the Americas region. Los Angeles and San Francisco rank No 9 and 10 globally, following New York as the most expensive destination in the world. Yet with vacancy rates for all property types continuing to increase in the US, the first signs of rental decreases have been seen in most key American cities in 1Q2009. Retail spending has been fluctuating in Latin American countries, and retail rents in the region have been affected to varying degrees, with Mexico City and Buenos Aires seeing retail rents fall by 14% and 37% y-o-y respectively.
Leasing activity in major Asian retail centres remained mostly weak in 1Q2009 as retail brands continued to delay expansion plans or closed down underperforming outlets. Hong Kong ranks as the world’s second most expensive retail rental market, with values of US$975 psf per annum. Further declines in prime retail rents have been recorded in Beijing, Tokyo, New Delhi and Singapore. Guangzhou was the third-fastest growing market for retail rents y-o-y, but has seen rents decline slightly in the past six months. In the Pacific, the most expensive retail location is Sydney, Australia, with rents of US$624 psf per annum.
In the US, Bloomberg reported that New York City kept its top rank from a year earlier as the most expensive retail market even as asking rents on Manhattan’s Fifth Avenue fell 10% to US$1,800 psf per year.
“Everything cratered in the fourth quarter and that carried over into the first,” says Ray Torto, global chief economist for CBRE. “This is not a landlord market.”
Retail rents will eventually decline 25% from the market peak in mid-2008, said Torto. Retailers with existing leases in desirable shopping districts and malls are negotiating for extended terms or reduced rent, he said.
Some non-US retailers are taking advantage of lower demand for space to enter the New York City market, said Faith Hope Consolo, chairman of Prudential Douglas Elliman’s retail and leasing division. Jewellers Richard Mille of Paris and Tous of Madrid are seeking space on Madison Avenue between 60th and 80th streets at a rate of about US$800 psf, she said.
On Rodeo Drive in Beverly Hills, California, the recession forced retailer Rock & Republic to reverse plans to occupy a 3,100 sq ft store after signing a lease last year, says Jay Luchs, a listing broker with CBRE. The company, paying US$675 psf on a 10-year term, wants to sublease to another tenant instead, he says.
“It isn’t chic anymore to go out and blow money,” says Luchs. “There’s a guilt factor even if you’re wealthy.”
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 763, July 13-19, 2009
TOP PICKS BY EDGEPROP
Taman Mawar, Bandar Baru Salak Tinggi
Paisley Serviced Residences, Tropicana Metropark
Subang Jaya, Selangor
Elegan Townhouse, Taman Putra Perdana
OFF JALAN SUNGAI CHOH / BUKIT BERUNTUNG