Retailers seek safety in prime cities

As retail rental growth slows in the wake of the credit crisis, retailers head to prime cities – and prime locations within those cities – to weather out the storm, according to a report by CBRE. New York, Hong Kong, Moscow, London and Tokyo remain world's most expensive cities for retail.

Retailers are opting for prime cities – and prime “pitches” within those cities – as they brace themselves for a drop in consumer spending.

The latest global retail rents survey from Richard Ellis reveals that demand for space at the top-end of the market has continued to push rents in fashion hotspots, such as New York, London and Hong Kong, higher.

However, as the industry prepares for a significant slowdown in consumer spending, many retailers are opting for “prime pitch space” in major key cities in a bid to shore themselves up for the long-term, said CBRE’s head of cross-border retail in the EMEA region, Peter Gold.

Gold added it was private retailers with cash to spare and those concentrating their expansion plans on key locations, who were primarily driving demand. “It will therefore be those retailers who have a particular point of differentiation within their market – either based on product or price – which are likely to succeed despite the tougher conditions,” he said. “And it is these who will consequently grow market share and ultimately help to sustain rents in key cities.”

The report said half the markets surveyed saw rental growth in the 12 months to the end of September, with 65 percent seeing increases in retail rents during the past six months.

Some cities, such as Tokyo and Madrid, had seen rents fall though, a trend which, the report said, was giving tenants the ability to negotiate contracts with landlords.

New York was the most expensive retail location in the world, followed by Hong Kong, Moscow, London and Tokyo. Tel Aviv saw the fastest growth in retail rents during the past six months, followed by Oporto, Abu Dhabi, Valencia and Lyon.