Real Estate Report: Global Hot Spots

For retailers, launching stores is always a bit of a gamble. The stakes, however, are even higher for American businesses gunning to go beyond the border. Sure, London, Paris and Milan remain among the most coveted locales. But other desirable international cities are ripe for exploration. Here, Footwear News speaks to retailers and the real estate pros about foot traffic, rents and stable economies to find the next great hot spot.

Region: Asia
The hot spots: Hong Kong & Shanghai

Despite concerns about China’s slowing economy, Asia remains the top growth market for retailers, according to real estate brokers. What’s driving demand? Industry sources said tourism and a booming population in Hong Kong has helped transform the city. But access to that desirable, wealthy consumer comes at a steep price — rents in Hong Kong are among the world’s highest, averaging $4,334 per square foot per annum at the end of the fourth quarter of 2013, according to real estate firm CBRE. But that hasn’t fazed fashion brands such as J.Crew and Charlotte Olympia, which move to the city this spring. “If you open there, you are educating the Asian market on where your brand sits and your expansion plans,” said Simon Gibbs, senior managing director of New York-based brokerage RKF.

Likewise, Shanghai has become an equally important entry point to the Asian market. Shanghai continues to see strong growth, aided by a large population of shoppers and numerous tourists from throughout the region and elsewhere. In the past year, Stuart Weitzman, Burberry and Sephora opened flagships in the city. Burberry’s Shanghai store is the largest Asian flagship for the retailer.

“Asian consumers are brand loyal and they like the brands that allow them to express themselves. They appreciate the brands that stand for something,” Mary Mowbray, SVP of the retail group at Colliers International in Toronto, said of the Shanghai and Hong Kong consumer.

Region: Canada
The hot spots: Toronto, Montreal & Vancouver

Call it the department store effect: After Saks Fifth Avenue and Nordstrom announced major moves into America’s northern neighbor, Canada immediately became a serious retail target.

“The Canadian consumer weathered the downturn better. They have more money to spend and are more comfortable spending it,” said Mowbray. “Traditionally there have been fewer players in the mid- and higher tiers in Canada, and that’s left an opening for more brands to enter here.”

Rents on desirable streets in Toronto, Montreal and Vancouver are all rising. For instance, on Vancouver’s Alberni Street, where Tory Burch and De Beers announced future locations this past year, rents jumped 43 percent in 2013, from 2012, averaging $147 per square foot, according to Colliers.

Laura Pomerantz, principal of her namesake real estate firm, said growing tourism and a burgeoning Asian population in British Columbia triggered much of the expansion. “You have a savvy and sophisticated customer in Canada who recognizes brands and is brand conscious,” she said. “You have a lot of tourism between Canada and America, and that makes a built-in customer base.”

Region: Europe
The hot spots: Berlin, Munich & Warsaw

Sluggish economies and high unemployment in Spain and Italy, unrest in Ukraine and fully realized growth in bigger cities has shifted some attention from traditional retail markets to alternatives such as Berlin, Munich and Warsaw, Poland. The interest from brands has sent rents up on nearly all the key streets. In Berlin, rates in the Tauentzienstraße shopping area rose 13.6 percent last year to $357.25 per square foot, according to Colliers. In Warsaw, rents on the historic Nowy Świat street increased 5.6 percent to $285.97.

Louis Vuitton opened its first German flagship in Munich in April 2013 and by June had expanded into Warsaw. Similarly, Karl Lagerfeld bowed shops in Berlin and Munich last year, a sign that brands continue to seek new options.

“Retailers know consumers need to understand the brand, and to do that you need a special and unique shop,” said RKF’s Gibbs.

Experts credit Germany’s robust economy, the tourism trade and the large, untapped customer bases in Central and Eastern Europe for the shift to other cities.

Consumers across Europe, though, are particular about fashion. “One of the mistakes some retailers make is they think the Eastern European customer isn’t as sophisticated, so they can get away with selling more of last year’s stock,” said Sean Briggs, managing director of Colliers International in Warsaw. “We have the same magazines and media. The consumer here is savvy.”

Region: Latin America
The hot spots: São Paulo, Rio de Janeiro & Bogota

The buzz for this summer’s World Cup and the 2016 Olympic Games in Brazil has helped turn the focus back to South America. While problems with Brazil’s infrastructure and political unrest have generated negative headlines, Rio de Janeiro and São Paulo still have untapped fashion-focused consumers eager to shop. Apple opened its doors in February in Rio de Janeiro, and Prada debuted four stores in Brazil at the end of 2013, even though rents there are the highest in Latin America. Along São Paulo’s Rua Oscar Freire, rates rose 15 percent in 2013 to $126.76 per square foot.

Colombia, too, has a burgeoning middle class, and some insulation from the economic downturn means local consumers are prepared to buy. While income remains comparatively low there, retailers such as Gap, Forever 21 and Victoria’s Secret are making plays for the Colombian customer.

“There are a number of major cities, but retailers are still cautious with changing economic conditions [in Latin America],” said Gibbs. “And they are cautious of markets where they don’t have full control of their brands.”