Strong Global Demand From Luxury Retailers Boosts Prime Rents In Q2
Having the perfect physical location in retail is increasingly important. As the retail landscape continues to shift in favor of omnichannel shopping, high-profile retailers in particular are searching for those iconic prime locations to expand their physical footprint as sales slowly move online.
“Sales in luxury are increasingly on the internet,” CBRE head of research in the Americas Spency Levy tells Bisnow. “Luxury spending online has increased up to 7%, though that’s less than internet encroachment overall. When dealing with very high-end accessories, many of them are still sold out of brick-and-mortar locations.”
The demand for prime retail space remains strong, with prime retail rents up globally by 3.7% in Q2, according to a recent CBRE report.
New York remains the most expensive retail market in the world, with rents on Fifth Avenue between 56th and 58th streets as high as $4k/SF. Hong Kong is the second-highest market for prime space with rents as high as $1,856/SF and London came in third with prime rents as high as $1,684/SF.
“Though rents are up through mid-year, we are seeing some softness now,” Spencer says. Global economies were faced with a weak first half of the year, with international travel suffering from volatility in China and Asia. In the US, anemic GDP growth of 1.4% in Q2 and the strength of the US dollar coming out of 2015 was also a contributing factor.
“The UK has performed very well notwithstanding Brexit, which caused some uncertainty,” Spencer says. “Similarly the euro has been weak relative to the US dollar [and] some foreign travelers are directing their spending to the UK and Europe for currency reasons.”
Prime retail rents in the Americas specifically rose 3.9% year-over-year, driven mostly by US markets. Looking outside of major fashion districts in New York, Chicago and Washington, DC, secondary cities like Seattle and Denver have posted substantial prime rent growth in the past year as job gains and population growth continue to strengthen local economies.
CBRE expects prime rents in the US to remain positive the second half of the year, boosted by strong consumer spending and payroll gains.
“Luxury retail is a very global business. There are two types of retail—there is luxury retail and then there is everything else. Luxury retail acts differently than everything else and is not impacted by the same factors,” Spencer says. “For instance, luxury retail has done well over the past seven years, whereas necessity retail has not improved at nearly the same rate. Ultimately this is because macroeconomics has benefited the luxury traveler.”