Myeong-dong, world's 9th most expensive shopping destination

By Dan Kim

Despite the backdrop of a slower global economy and continued uncertainty, global prime retail markets have proved generally resilient over the year to June, with rental growth driven in particular by a strong performance in Asia and the Americas.

Of 326 prime locations in 62 countries surveyed for the report, a total of 147 saw rentals increasing with just 49 or 15 percent experiencing rental declines _ compared with 19 percent in 2011.

Hong Kong’s Causeway Bay driven by a surge in demand and leasing activity experienced a 34.9 percent hike in rental values to $2,630 per square feet, overtaking Fifth Avenue in New York at $2,500, as the most expensive retail destination in the world. It’s the first time in 11 years that Fifth Avenue has not been on the top.

The biggest climber in the top ten was Avenue des Champs-Elysees in Paris at $1,129, which jumped two places into third spot, leaving Ginza Tokyo at $1,057 in fourth place.

Luxury retailing continues to fuel trading and rental growth across prime pitches of the global market. Luxury retailers are competing for the most coveted shopping destinations, exerting upward pressure on prime rental values. Despite recent slower sales growth, the luxury sector will remain resilient and continue to play a vital and prominent role in driving overall performance in the world’s premier locations.

The Korean market has seen noticeable progress over the last few years with more quality shopping malls being opened, improved space in existing department stores and retailers increasingly trading directly rather than through partners.

The so-called SPA (specialty store retailer of private label apparel) brands have had the biggest impact on the market with Zara, Uniqlo and H&M now dominating. Domestic retailers such as Cheil Industries’ 8 Seconds are making inroads into their success, but the aforementioned international brands have become highly desirable for the Korean consumer.

Garosugil remains particularly sought-after with Hollister, H&M, Fossil, Zara, Forever 21, Diesel, Lacoste, Massimo Dutti and Camper all taking stores on the street within the last two years.

Seoul’s Myeong-dong is ranked as the world’s 9th most expensive shopping destination. This district saw a significant growth of 705,166 won per square meter a month with 16 percent increase in rents during the same period last year. The rents around Gangnam Station and on Garosu-gil rose by 18.8 percent to 606,039 won and a whopping 41 percent to 253,783 won, respectively.

Americas

The Americas showed the strongest rental growth of all regions. Prime rental rises in North American locations were driven by the strong performance of the U.S. (16.3 percent) and Mexico (11.5 percent), while Canadian values recorded a marginal uplift.

Conditions in the U.S. retail market improved over the year as sales and leasing activity picked up, albeit mainly in the prime segment. However, further falls in vacancy rates and limited new supply in the market could see the overall rental rate increase over the next 12 months for the first time since 2008.

Buoyed by rises in emerging markets, rental growth in South America improved by 11.6 percent on 2010/2011 figure and surpassed all other regions. Brazil was yet again the engine of growth not only in economic activity but also in prime retail rents. Indeed, the city of Rio de Janeiro witnessed exceptionally strong uplift, with rents surging by 64.7 percent in the highly sought after area of Garcia D’avila in Ipanema.

Asia Pacific

Despite a slight deceleration in regional growth rate in Asia Pacific of 8.6 percent compared with 12.2 percent in 2011, occupier demand in the region remained robust, with retailers eager to tap into a generally younger but increasingly affluent middle-class. Asia Pacific also contained five of the 10 most expensive global locations and operators continued to compete for the limited prime space in the coveted destinations of Hong Kong and Korea.

The highlight of this year’s survey was Hong Kong with the rents advancing 21.8 percent as a result of extremely active demand from a diverse group of new international retailers, expansion plans from existing brands and very limited availability. Indeed, notwithstanding slowing economic activity, retailers continued to see the market as the ideal launching platform into mainland China.

Prime rents in India rose by 12.5 percent on the back of strong occupier demand across all sub-sectors, but some retailers were increasingly favoring high street properties at the expense of shopping centres, evidenced by the 75 percent increase in rents in Colaba Causeway in Mumbai _ the highest increase globally.

Europe, Middle East and Africa

The retail sectors performance across the region remained deeply polarized over the past year, with premier locations in most large cities attracting good demand from international luxury brands. At the same time, even in stronger cities, secondary pitches are still struggling on the back of rising availability and weak consumer sentiment.

The prime values in the regions were up by 1.7 percent in the year to June, boosted by the continued demand from international fashion brands and the luxury sector. Prime rents in 25 of the 31 European markets surveyed saw rents remain stable or increase, whilst they fell noticeably in countries affected by austerity measures ― for instance, a 17.1 percent fall in Greece, 15.1 percent in Ireland and 13.3. percent in Hungary.

The prime segment of core European markets witnessed dynamic activity, underlined by a rental uplift of 14.6 percent in France achieved through impressive double-digit rises, primarily in luxury driven locations. Other core markets saw positive growth although at a gradually more moderate trend ― for instance, a 6.3 percent growth in the United Kingdom, 5.4 percent in Italy, 4.7 percent in Germany and 4.5 percent in the Netherlands.

Dan Kim is head of retail transaction, Cushman & Wakefield Korea.