If it’s on this Street, You Probably Can’t Afford it
Will Global Megatrends be the Demise of Traditional Retail?
New York’s Upper Fifth Avenue retains the top spot as the world’s most expensive high street retail corridor, with yearly average annual rents of $3,500 per sq. ft. and a roster of the world’s top luxury, destination retailers.Of course, other iconic locations like the Avenue Champs des Elysees, The Ginza, London’s New Bond Street and Hong Kong’s Causeway Bay are among the priciest real estate in the world in their own right, according to Cushman & Wakefield’s Main Streets Across the World.
So, what’s driving these stratospheric rental rates, and how are global megatrends like e-commerce, economic headwinds in emerging markets and risks like terrorism impacting retail in general and high-street retail in particular?
A 4% increase in global tourism points to one of the most obvious, enduring reasons for increased sales and high street rent growth. Average yearly rents per square foot reflect the global allure of luxury corridors like Fifth Avenue, Causeway Bay (U.S.$2,399), Champs Elysees in Paris (U.S.$1,372), The Ginza in Tokyo (U.S.$881.9), Myeongdong in Seoul (U.S.$881.8)and New Bond Street (U.S.$1,321). For the Eurozone and Japan, qualitative easing also has weakened the euro and yen, which likely has aided international visitation and spending in those locations. Looking ahead to 2016, airlines are expected to pass along fuel-cost savings to consumers through lower ticket prices, which should further boost tourism.
Two of the world’s megatrends, accelerating urbanization and the rise of omni-channel retail, also have an enormous impact. According to the U.N., more than 50% of the world’s population resides in urban areas, with that figure expected to increase to 66% by 2050. As population density increases, retailers benefit from agglomeration and economies of scale, which then creates a critical mass of retail and restaurants, a “destination” that’s attractive to tourists and residents alike. This, in turn, fuels competition, amplifying the need to stand out via branding, customer loyalty and advertising. Having a store on, say, Fifth Avenue, Causeway Bay, Avenue des Champs Elysees or New Bond Street is an important part of meeting these objectives.
Those high-street locations can be an essential element to successful omni-channel retailing, too. E-commerce has grown enormously over the past 15 years, but physical stores remain important as they offer the ability to interact with the merchandise, instant gratification for consumers, personal service and professional guidance. Experiential and entertaining stores will increasingly compete for customers, and in an omni-channel environment, customers’ in-store experience matters even more.
Risk & Resilience
Going forward, economic slowdown in markets such as China, Russia and Brazil poses headwinds for retail and the broader economy, but improvements in advanced economies such as the U.S. and U.K., where both employment and wage growth are improving, help balance this muted performance from emerging markets.
Of course, we cannot ignore the global risk environment and threat of terrorism that can impact every aspect of our lives, including leisure and retail. But we can follow the example set by cities such as New York, London, Madrid and, most recently, Paris, all of whom set the standard for vigilance, resilience and prosperity in defiance of terrorists’ aims.
What’s your outlook for retail – especially high street retail – in 2016?