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Global luxury brands flock to China markets
2012-07-28
By Cherry Cao

Around 40 percent of the world's priciest fashion retail streets continue to see year-on-year rental growth despite continued economic uncertainty, leading real estate services provider Colliers International said in its latest 2012 Global Retail Streets survey.

Of the 129 locations tracked, 51 posted higher average rents and 49 remained unchanged from a year ago, while 24 recorded annual drops. The remaining five lacked comparable data, according to the survey.

New York's Fifth Avenue - at US$28,342 per square meter per year - retained its top spot as the world's most expensive fashion retail street. It's immediately followed by Queen's Road Central and Canton Road in Hong Kong, which both ask for US$19,709 per square meter per year.

Four of the world's top five retail streets - except the Champs-élysées in Paris - registered double-digit year-on-year growth, with the rent of Queen's Road Central surging the most from a year earlier by nearly 35 percent.

Retailers entering new markets - both developed and developing ones - continued to hedge risk by targeting the same one or two premier locations, generating heated competition and outsized rental growth in a handful of space-constrained corridors.

Companies with the most ambitious long-term expansion plans, meanwhile, remained focused on emerging markets with rapidly growing middle-class populations, but institutional capital has recently pulled back somewhat to favor core markets and investments, the survey found.

Main China finding

Looking ahead, however, weakening consumer sentiment among affluent shoppers has already begun to impact retailers' revenues and could hinder landlords' near-term ability to raise rents, suggesting flattening growth rates for the coming year.

In Asia, following Hong Kong's two prime retail corridors in the global Top Five, Ginza-Chuo Street in Tokyo, Orchard Road in Singapore and Nanjing Road W. in Shanghai ranked No. 14, 25 and 31 worldwide, respectively.

Retail rents of most Asian locations either saw growth or stayed flat, with Hong Kong, Beijing and Bangalore being the most resilient markets, registering double-digit annual increases.

China continues to attract a flood of international retail brands. Hong Kong and Shanghai, which have the densest concentrations, differ so markedly as to require a different expansion mindset by entering companies. Hong Kong's strong tourist traffic is largely responsible for its outsized retail sales, and rental rates have skyrocketed accordingly.

In contrast, Shanghai's market is fueled by its burgeoning, sophisticated middle-class residents who are eager to purchase luxury products. With rental rates on Shanghai's Nanjing Road W. (US$3,572 per square meter per year) a relative bargain compared with those in Hong Kong, some European retailers are not only choosing Shanghai for their Chinese launch, but may also be delaying expansions in pricier markets on the United States West Coast. Beijing is also a popular entry point as Apple and Alexander Wang both opted to debut there.

The quantity and quality of retail property construction is increasing as restrictions on the residential sector force developers, especially those holding undeveloped land banks, to seek returns in other property types. Chinese developers such as Dalian Wanda and Poly Group have overcome a huge knowledge gap in development and construction, which has led to more judicious project planning and an increased focus on conducting feasibility studies to combat slimmer project margins.

After Hong Kong, Macau, Shanghai, Beijing and Guangzhou, the growth story is very good in many third- and fourth-tier Chinese cities. Many of them, with more than 1 million people and not yet on Western radar, represent the next frontiers of commercial activity as planned infrastructure drives retail development.

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