Consumer spend on luxury goods remains robust, despite various economic headwinds affecting the global retail sector generally. While online purchases are an important part of overall sales for luxury brands, strategically located physical stores continue to play a vital role too. This is underlined by significant rental growth in ultra prime locations globally, driven by the strength of occupier demand.
Our analysis of the prime indicative asking rents across the core luxury retail locations in 25 global retail cities reveals that Paris was by far the strongest performer for growth between Q3 2017 and Q3 2018. On Avenue Montaigne, rents rose 20 per cent year-on-year from €15,000 to €18,000 per sq m per annum (Zone A).
Much of this growth can be attributed to a resurgence in occupational demand on the back of improved tourist arrivals, particularly those from China where numbers were up 5.4 per cent over the first half of 2018 on the back of a 19.9 per cent increase in 2017.
London, Madrid and Stockholm saw the next greatest growth, with a prime luxury pitch in each city showing an 11.1 per cent year-on-year rental increase in Q3. Of particular note was the growth reported for London’s Bond Street in the face of Brexit, and the fact that it is one of the most expensive retail locations globally (current indicative Zone A rents of €30,140 per sq m per annum), highlighting its resilience and continued appeal to luxury brands.
Looking globally, European cities dominated in terms of luxury rental growth, taking six of the top nine spots with the German cities of Frankfurt and Munich also featuring. This was followed by Asia Pacific cities, which took the other three and included Melbourne, Sydney and Hong Kong.
As was the case in Paris, improving visitor arrivals from China, particularly in the case of those from Hong Kong, was the key catalyst for growth. This led to strong demand for new space from brands keen to capitalise on rising Chinese visitor spend, albeit uncertainty has recently returned and may temper rental growth going forward.