The world’s most prestigious retail locations are experiencing a remarkable revival in rental rates, signaling a robust recovery following the pandemic-induced slump. In the year 2023, the coveted titles of the most expensive retail venues on the planet belong to Manhattan’s Fifth Avenue and Milan’s Via Montenapoleone, boasting rental rates of $2,000 per square foot and $1,766 per square foot, respectively. Notably, Tsim Sha Tsui in Hong Kong, which previously held the second position, now ranks third at $1,493 per square foot.
These revelations stem from the 2023 edition of the “Main Streets Across the World” report by Cushman & Wakefield, a renowned commercial real estate services firm. This report presents rental data in both U.S. dollars and foreign currencies, enabling insightful comparisons.
Fifth Avenue Thrives: Fifth Avenue, spanning from 49th to 60th Streets, maintained an average retail rent of $2,000 per square foot in 2023, signifying stability compared to the previous year. However, this figure conceals an impressive 14 percent increase when compared to pre-pandemic levels, underscoring the avenue’s unwavering appeal and resilience.
Over the past year, Fifth Avenue witnessed the inauguration of several flagship stores, including Abercrombie & Fitch, Chopard, Mango, the reimagined Tiffany flagship, and Swarovski. Moreover, Chanel is poised to launch a jewelry store on the iconic avenue, while Louis Vuitton embarks on the renovation of its Fifth Avenue and 57th Street flagship, temporarily relocating across the street along 57th Street.
Milan’s Remarkable Rise: Conversely, Via Montenapoleone in Milan experienced substantial rental growth in 2023, with average rents surging by an impressive 20 percent year-over-year. Remarkably, these rents now stand at a remarkable 31 percent above pre-pandemic levels, firmly establishing Milan as a global luxury retail hub.
Completing the top five are New Bond Street in London, commanding $1,462 per square foot, and Avenue des Champs-Élysées in Paris, with rents at $1,120 per square foot.
Beyond the top ranks, Tokyo’s Ginza retains its position as the sixth most expensive retail venue globally, maintaining a steady rental rate of $912 per square foot, consistent with 2022 figures.
Istanbul’s Meteoric Rise: The report spotlights Istanbul’s Istiklal Street, experiencing a remarkable ascent in the rankings, surging from 31st place last year to 20th place in 2023. Inflation-driven factors led to a doubling of rents over the past year, resulting in a substantial increase to $245 per square foot—an astonishing 120 percent year-over-year surge.
Market Insights: The report underscores the global trend of increasing rents across prime retail destinations, with an average year-over-year growth of 4.8 percent in local currency terms. Notably, the Asia Pacific region recorded the highest growth at 5.3 percent, followed by the Americas at 5.2 percent and Europe at 4.2 percent. However, despite this growth, rental increases did not match the levels of peak inflation in most cases.
A significant insight from the report is that nearly 60 percent of global markets remain below pre-pandemic rental levels, with Europe particularly affected, where 70 percent of markets lag behind pre-pandemic rent figures. In contrast, the United States stands out, with only 31 percent of markets below pre-pandemic levels, while 69 percent have surpassed those levels.
Challenges Ahead: The report also delves into challenges facing the retail sector, such as persistent inflation, rising interest rates, and slowing economic growth, which have collectively placed consumer spending under pressure. Additionally, the debate continues regarding the vibrancy of prime central business districts (CBDs) as the “return to the office” remains lackluster in many parts of the world.
As international tourism has not fully recovered to pre-pandemic levels, luxury brands are navigating shifting consumer spending patterns, marked by restrained discretionary spending. Inflation, increased borrowing and interest costs, and aggressive interest rate hikes by central banks contribute to these shifts.
While prime retail locations remain in high demand, retailers are exercising caution in allocating capital expenditures amid slowing revenue and rising costs. The report anticipates slower economic growth in 2024, particularly in the U.S., U.K., and parts of Europe, with some regions possibly facing mild recessions. Consumer sentiment remains subdued, reminiscent of pandemic levels, reflecting the challenges that lie ahead.