Retail rents along prime venues are back on the rise after taking a dive during the pandemic.
Manhattan’s Fifth Avenue and Milan’s Via Montenapoleone rank as the world’s most expensive retail venues this year, at $2,000 per square foot and $1,766 per square foot, respectively.
Placing third is Hong Kong’s Tsim Sha Tsui, at $1,493 per square foot. Tsim Sha Tsui formerly held the second place spot until being displaced by Via Montenapoleone.
Those are some of the findings from the 2023 version of Cushman & Wakefield’s annual report, “Main Streets Across the World,” which focuses on venues for luxury brands. The giant commercial real estate service firm report lists rents in both U.S. dollars and foreign currencies for comparison purposes.
C&W indicated that Fifth Avenue retail rents, from 49th to 60th Streets, on average remained flat in 2023 at $2,000 a foot, compared to last year, but were up 14 percent against pre-pandemic levels.
In the past year, several high-profile flagship stores have opened along Fifth Avenue in Midtown including Abercrombie & Fitch, Chopard, Mango, the reimagined Tiffany flagship and Swarovski. A Chanel jewelry store will be opening soon on the avenue. In addition, Louis Vuitton intends to renovate its Fifth Avenue and 57th Street flagship and temporarily operate across the street along 57th.
Via Montenapoleone’s average rents in 2023 rose 20 percent year-over-year, and are 31 percent ahead of pre-pandemic levels.
In the fourth and fifth positions, respectively, are New Bond Street in London at $1,462 per square foot, and Avenues des Champs-Élysées in Paris at $1,120 per square foot.
The sixth most expensive retail venue in the world is Tokyo’s Ginza, at $912 a square foot, unchanged from 2022.
Zurich’s Bahnhofstrassse, Sydney’s Pitt Street Mall, Seoul’s Myeongdong and Vienna’s Kohlmarkt, ranked seventh, eighth, ninth and 10th on C&W’s list, respectively.
Moving the most up the ranks was Istiklal Street in Istanbul, which leapt to 20th position on the rankings from 31st last year. C&W reported that rampant inflation caused rents to more than double over the past year, with Istiklal rents rising to $245 a square foot this year, or a whopping 120 percent above last year.
Meanwhile, Biblioteksgatan in Stockholm dropped to 27th place in the rankings from 24th place, which C&W attributed to the euro strengthening against the U.S. dollar moreso than the Swedish krona, despite rent prices in Stockholm growing.
“Rents across global prime retail destinations continued their ongoing recovery, increasing on average 4.8 percent in local currency terms over the past year, compared to a 3.7 percent growth in 2022,” C&W said. “The strongest growth was recorded in Asia Pacific, which averaged 5.3 percent, with the Americas at 5.2 percent and Europe at 4.2 percent. Notwithstanding comparatively strong growth over the past year, in most instances, the increase in rents did not match levels of peak inflation.”
C&W also indicted that almost 60 percent of markets globally remain below pre-pandemic rental levels. “This is most evident in Europe where 70 percent of markets are below pre-pandemic rents. In contrast, in the U.S., only 31 percent are below pre-pandemic levels; 69 percent are above,” C&W indicated.
The report also provides commentary on the retail sector, citing “fresh challenges in the past year such as higher although easing inflation, rising interest rates and slowing economic growth” putting consumers under “sustained pressure.”
“Compounding these challenges is the ongoing question over the vibrancy of prime CBDs [downtown] as the ‘return to the office’ remains lackluster across many parts of the world,” C&W said. In New York City, while there remains much unused office space, this year there has been a noticeable pickup in pedestrian traffic along Fifth Avenue with locals and tourists. Among the stores drawing the most traffic have been the new Tiffany’s flagship, Louis Vuitton, Zara and Uniqlo.
According to C&W, international tourism has not having fully yet recovered to pre-pandemic levels.
Part of the report is devoted to how the luxury sector has fared. The report states, “Although the luxury sector has slowed overall, luxury sales growth remains in positive territory as seen in recent third-quarter 2023 earnings results. The end of 2023 and into 2024 is likely to remain a challenging trading period but one that we are confident the sector can endure as it continues to evolve to meet economic and societal change.…For the luxury sector, this represents a normalization in their customer base after a period of strong fiscal stimulus, but as noted, sales growth is slowing.”
C&W points out that consumer spending patterns are shifting for several reasons, and consumers are largely reigning in on discretionary spending. Inflation and higher borrowing and interest costs are among the issues, while C&W noted that central banks have undertaken “one of the most aggressive interest rate hiking cycles in decades.”
While there have several retail openings on Fifth Avenue and other prime venues internationally, as C&W noted, there are challenges for further additions. “Retailers are understandably reluctant to allocate large capital expenditure budgets at a time of slowing revenue and increasing costs,” C&W reported. “Vacancy in super-prime retail locations remains tight, however, leading to competitive tension when these rare sites become available.”
“For all regions except South America, economic growth is expected to be slower in 2024 than 2023, with the U.S., U.K. and parts of Europe either dipping into a mild recession or skirting very close to it. Similarly, as interest rate hikes have taken effect, consumer sentiment has dampened, remaining in negative territory at levels as low as during the pandemic.”