The luxurious Chinese city Hong Kong has cemented itself with the dubious reputation of being the world’s most expensive global retail market, but less choice is emerging in its districts.
This title is largely due to wealthy mainland Chinese tourists on shopping excursions, expansion by luxury retail chains, and a shortage of prime real estate driving rents to record highs.
In its quarterly survey tracking the top 10 most expensive prime global retail markets, global property advisor CBRE found this period continued to witness historically low construction rates of prime space, leading to low availability levels and fierce competition.
This dynamic is driving record rents across many global retail markets, including those ranking among the most expensive, such as Hong Kong, London, Paris, and Sydney.
Prime Hong Kong rents held steady during the fourth quarter of 2012 at $4335 per square foot per annum, defying a deceleration in retail sales due to current global economic uncertainty.
Demand in Hong Kong has remained relatively muted as many retailers have grown less aggressive with their expansion or entry plans given the market’s lofty rent levels.
Retailers throughout Hong Kong have generally become more selective in their requirements, with the best prime units still in high demand, while off-prime or secondary units are attracting less interest.
Joe Lin, CBRE senior director for retail in Hong Kong, said that with relatively promising economic expectations for 2013, luxury brands will continue to see the city as profitable.
But the flipside to this is that local retailers, who are not primarily targeted at tourists, cannot afford the increasing rents, says Lin, resulting in less choice for shoppers in some districts.
With the prime areas packed with Chinese tourists, local residents are also beginning to shift to the outskirts of the city for their shopping.
Prime rental growth is expected to stabilise in Hong Kong, Melbourne, and Sydney in the next year, and even strengthen slightly in Tokyo, Paris, London, Beijing, said CBRE.
As the only American city in CBRE’s top 10 rankings, New York has performed particularly well over the past year, driven by strong tourism trends and demand from international retailers.
New supply in New York came at an accelerated pace, causing the asking rent on Fifth Avenue to rise year on year by 16.5 per cent, to a record high of $2970 per square foot per annum.
While most global prime rents were stable during fourth quarter of 2012, London and Paris both witnessed measurable prime rent growth, with Paris notably climbing in the ranks.
Even with quarterly growth of 27 per cent, Paris is expected to see further prime rent growth due to increasing demand for space in the city’s best locations.
*This article was first published in Inside Retail Australia’s weekly digital subscriber only edition. For details on subscribing click here.
