Source: The Nation

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), Global Retail MarketView.

Demand for retail space has declined in most markets across the world as consumers cut back on spending and unemployment continues to rise in many countries. Emerging and less established markets have been most significantly affected. Buenos Aires saw the largest annual decline in retail rents year on year with a drop of 37 per cent, followed by Warsaw with a 33-per-cent decline and Washington, DC with a 26-per-cent decline. Whilst some markets have continued to experience year-on-year increases in retail rents, in many cases the current pressure is downward.

Prime retail rent represents 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-per-cent year-on-year rental decline, New York remains the world’s most expensive retail destination, with rental values totalling Bt55,288 per square metre per month. New York’s retail rents stand at nearly double those of Hong Kong, which still ranks in second place globally with rents of Bt29,948 per square metre per month. In an interesting switch, Moscow has superseded Tokyo in the ranking, moving into third place from fourth, followed by Paris and Tokyo respectively, making up the top five most expensive retail locations.

Nick Axford, Head of EMEA [Europe, the Middle East and Africa] Research and Consulting, CB Richard Ellis, commented that with unemployment rising and consumer confidence and spending weakening in most parts of the world, most retail property markets were experiencing reduced demand from retailers and an increase in the number of vacant units, which was 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 are tending 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 added.

Moscow, Paris and London (respectively) 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 to decrease by 3 per cent during the first quarter of 2009, a decline of 1.2 per cent year on year. The rate of European rental growth has been steadily declining since peaking at around 5 per cent quarter on quarter in mid-2007. Prime retail rents fell by 10 per cent or more quarter on quarter 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 at ninth and tenth positions within the global ranking, 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 the first quarter of 2009. 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 per cent and 37 per cent respectively year on year.

Leasing activity in major Asian retail centres remained mostly weak in the first quarter of 2009 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. 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 year on year but has seen rents decline slightly in the past six months.

Retail Rents Plummet Around the World

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