Rising Rents May Signal Rebound

Rents in prime U.S. shopping areas have climbed as much as 15 percent from the end of last year, likely heralding a broader recovery, according to the head of North American leasing at CB Richard Ellis Group Inc.

National retailers are driving up the cost of space on streets such as Rodeo Drive in Beverly Hills, California, and Michigan Avenue in Chicago, Anthony Buono, the broker’s executive managing director for retail services, said in an interview in Las Vegas yesterday. Rents in the most expensive U.S. districts have increased 10 percent to 15 percent from the last quarter of 2009, he said.

Retailers are expanding to take advantage of rebounding consumer spending and national rents that have tumbled from their peak before the U.S. recession. Increases in the top districts are spurring a recovery in secondary shopping areas in cities such as Seattle and Miami, which signals that a rebound may spread next year to suburban markets, Buono said.“We’re starting to see some stabilization,” he said. “It’s the beginning of a slow march.”

On New York’s Fifth Avenue, the world’s most expensive shopping district, Japan’s Fast Retailing Co. set a record last month for a New York City retail lease. The company agreed to pay $20 million a year to rent a location near 53rd street for its Uniqlo clothing store.

“There is the sense that demand is improving quickly” in prime shopping areas in New York and other major cities, Robert Taubman, the chairman and chief executive officer of Bloomfield Hills, Michigan-based shopping center owner Taubman Centers Inc., said in an interview.

Retail Expansion

A survey of U.S. retailers conducted by Los Angeles-based CB Richard Ellis, the world’s biggest commercial property broker, showed that 92 percent plan to expand this year. Total retail leasing activity this year through April is 15 percent to 20 percent higher than in the year-earlier period, Buono said.

Buono and Taubman spoke in interviews at a convention hosted by the International Council of Shopping Centers, a New York trade group. This year’s event occurs as U.S. retailers have posted sales and earnings increases amid an economic recovery. Consumer spending probably will climb at a 3 percent annual pace this quarter, according to the median estimate of economists surveyed by Bloomberg News.
Taubman booked 20 percent more deal-making appointments at the ICSC convention than last year, he said. He called the year- over-year change in demand “extraordinary.”

‘Renewed’ Confidence

Convention meetings with landlords and retailers “suggested that both had a renewed sense of confidence, a return to the long-term views of their businesses, and a generally positive though cautious outlook for retail and retail real estate,” Rich Moore, a real estate analyst at RBC Capital Markets Corp. in Solon, Ohio, wrote in a report yesterday.

U.S. retail rents fell about 15 percent in the first three months of the year from the same period of 2009 because of vacancies created by defunct national chains, Buono said. Retailers including Circuit City Stores Inc. and Linens ‘n Things Inc. disappeared in the past two years as consumers cut spending during the worst economic slump since the Great Depression.

Source: Bloomberg - By Lauren Coleman-Lochner and Daniel Taub