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Strong demand for space in prima shopping streets drives retail rental growth across Europe

London - Moscow — July 26, 2017, – London’s New Bond Street has taken the top spot for the fastest growing prime retail location in the world as it recorded prime rental growth of 39.1% in Q1 2017, compared to the same period last year, according to CBRE’s half yearly research report Global Prime Retail Rents.

Despite rental levels remaining stable quarter on quarter on New Bond Street, the UK’s capital has also ranked second among the world’s top 10 most expensive retail locations ($1,753 per sq ft per year in Q1 2017) with New York’s Fifth Avenue retaining its position as the world’s most expensive retail destination commanding $3,240 per sq ft per year. Hong Kong, Paris and Tokyo make up the top five markets for prime retail rents.

The report which is based on the retail rent per square foot that retailers have to pay every year to occupy a shop in a prime location shows that Europe was the only region to register rental growth in Q1 2017 with an increase of 4.3% year-on-year.

Many of Western Europe’s capital cities witnessed strong rental growth which is being driven by lack of supply in prime retail areas. This has led to retailers paying higher rents in these cities to guarantee brand awareness and further support their expansion plans within the region. The return of prosperity to the Irish and Spanish economies has also led to Dublin and Madrid registering rental growth of 10.5% and 6.4% respectively, in the past year.

St. Petersburg ranked second in the top 10 fastest growing retail locations and reported a 15.4% year-on-year growth; this was largely driven by an increase in tourism in the city. Retailers have shown strong demand for prime retail locations and similar to the growing trend in the wider retail industry, demand by Food & Beverage operators looking to enter markets has pushed the growth in rents.  Auckland and Sofia were third with 12.5%, Dublin was fifth with 10.5% and Glasgow was sixth with 9.4%.

Rhodri Davies, Head of UK Retail, CBRE, said:

“London’s overall performance is emblematic of the broad strength we are seeing across the retail market in Europe. Demand for quality retail space in London remains robust and the arrival of brands such as New Balance, and Nars has further underlined the importance of these prime shopping destinations.

However, an increase in occupational costs, as a result of business rates revaluation, has meant that retailers are increasingly being more selective about their choice of store location.  This has resulted in a slowdown in the past six months of retailers transactions in London’s prime retail streets”.

Natasha Patel, EMEA Retail Research at CBRE, commented:

“The retail sector is rapidly evolving and is a highly competitive market, therefore, retail brands must focus on targeting consumers across multiple channels. The physical store remains an important part of the consumer journey and retailers will continue to target prime bricks-and-mortar locations to grow their brand. Stores will also become the place that customers use to interact with physical products and retailers will use to showcase and try innovative technology”.

Marina Malakhatko, Director, Head of Moscow Retail, CBRE, commented:

“Prime rental rate on Moscow’s most expensive street – Stoleshnikov Lane – is now around 300 000 RUB/sq m/year which corresponds to 465 US$ /sq ft/year. In general, Moscow street retail market has been very unstable over the past two years. A massive street renovation programme that is currently in progress has negatively affected both pedestrian and automobile traffic hence lowering rental rates. At the same time new international retailers are now more interested in shopping centres rather than street retail: out of 23 new brands in H1 2017, only 5 preferred street retail as the point of entry to the market.”

Top 10 Global High Streets Ranked by Prime Retail Rent in US$ per sq. ft. per annum as of Q1 2017

*Source: CBRE Research, Q1 2017