New luxury retail locations emerge in European capitals

Growth in Asian tourism is providing a major boost to rental values in luxury high streets in major European capitals and the trend is not expected to reverse any time soon.

In fact, Béatrice Guedj, head of research and strategy at Grosvenor Fund Management Europe, believes investors are extending their search for new luxury locations due partly to tightening yields for existing high-end destinations. The Old Spitalfields Market in East London where the retail and catering area are up for grabs is a case in point, she says in a guest column in PropertyEU's Market Watch. 'The site has become a trendy tourist destination, rather like the famous Marais in Paris.'

Yields on many of the well-known high-end locations have already reached an historic low: 2.75% in New Bond Street, 3.75% in Avenue des Champs-Elysées, 4.25% in Avenue Montaigne or 4.5% in Saint-Germain des Prés.

High net worth investors and sovereign wealth funds like the Qatar Investment Authority (QIA) are contributing to the trend. After acquiring London’s Harrods department store in 2010, QIA has gone on to buy trophy assets in the French capital and has helped drive the inward yield shift observed on the Champs-Elysées. The QIA’s acquisition in 2012 of a trophy asset and flagship retail complex for an estimated €515 mln was followed recently by another purchase on this prime hunting ground: an Art Deco building built in 1931 which includes the famous Lido cabaret and had a price tag of €160 mln.

Guedj concedes that the high prices paid on this celebrated shopping street and others across Europe mean that returns are low. 'But,' she adds, 'so are the risks and more importantly, the required rates of returns do not share the same paradigm.'

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