The world may be down $2 trillion and change in stock and debt losses for 2008, but that didn't stop retail rents from rising in some of the financial world's most chi chi streets, according to CB Richard Ellis.

The brokerage giant's list of the world's top 25 cities with the fastest-growing retail rents over a 12-month period ending in September 2008 include three epicenters of the credit crisis: New York was up 10%, Hong Kong, up 11%, and even London, up 7.1%.

Signing a more expensive lease at the same time your best customers are getting pink slips might not sound like a great business decision, but Peter Gold, CBRE's head of crossborder retail in Europe, the Middle East and Africa, insists retailers know what they are doing. The new leaseholders are betting that the lifetime value of a 10- or 20-year lease will outweigh the possibility of weak sales in the coming year, Gold says.

Value and luxury survive

Not that sales have been all that bad yet. In many top markets, while the middle market is struggling to find a solid niche, the value and luxury segments are still strong enough to justify new investment.

It hasn't been the best year for retailers, Gold allows. But sales have held up enough for some retailers to push ahead with aspects of their expansion plans.

Gold points to Westfield Centre, a new 1.6 million sq. ft. shopping center in London that opened in October almost fully leased, as evidence that retailers continue to be willing to pay for quality. “The quality is prime, and therefore it is still of interest to retailers,” he says.

But one New York retail consultant is skeptical of the findings. In his city, which CBRE ranked as the 11th fastest-growing market, he's seeing a different story on the ground. “When I walk along Madison Avenue, which I do every weekend with my wife, there's more and more empties,” says Howard Davidowitz, president of Davidowitz & Associates.

Davidowitz also doesn't see evidence that luxury earnings are holding up. If luxury is so strong, he asks, why are Tiffany's earnings down 60% in the third quarter of 2008 over the same period a year ago? How come Neiman Marcus lost $50 million? Forget the flight to quality, he says, what's going on is a flight to retrenchment.

Rather than open shops on the most fashionable streets, Davidowitz says the intelligent retailers he knows are cutting back on expenses as much as they can, and raising whatever cash they have available.

In Hong Kong, like other Asian markets, rents have yet to decline, says Morgan Taubman, an executive for Taubman Asia in Hong Kong. Much of Asian retail is leased on a per square foot basis rather than as a derivative of sales, he says. “It will take a while for the slowdown in sales to flow through to rentals.”

No upside for owners

On the investment side, CBRE is less sanguine about retail prospects. “The investment market is in quite a significant downturn, and that's all property including retail property,” says John Welham, CBRE's head of retail investment for Europe, the Middle East and Africa.

Retail property transactions are off 40% year-to-date compared with the same period a year ago, says Welham. The remaining transactions are closing at much higher cap rates. Since summer, he says, London yields have climbed by about 150 basis points, and in Paris, yields are up 100 basis points.

In Europe, prime retail is falling less quickly — but it's still falling, says Welham. “At the moment, values are still falling pretty much across Europe.”

But bad news is always someone's opportunity. Some owners are so hard up for cash right now, Welham says, retail tenants with access to equity may find it an opportune time to buy out their landlord. “If you are a retailer and you've got access to equity, then this is probably a good time to start thinking about owning rather than leasing.”

Bennett Voyles is a veteran commercial real estate reporter and NREI's Paris correspondent. For questions or comments, readers can e-mail him at benvoyles@yahoo.com.

TOP 15 FASTEST GROWING MARKETS WORLDWIDE FOR RETAIL RENTS

The financial world may have fallen apart last year, but a recent survey found that retail rents actually rose in some important markets for the year ending in September 2008.

Retail market	Annual rent increase
1 Tel Aviv, Israel	33.3%
2 Oporto, Portugal	33.3%
3 Abu Dhabi, UAE	25.3%
4 Valencia, Spain	25.3%
5 Lyon, France	16.7%
6 Bucharest, Romania	16.7%
7 Guangzhou, China	16.3%
8 Miami	13.8%
9 Shanghai, China	12.9%
10 Hong Kong	11.1%
11 New York	10%
12 Montreal	9.4%
13 Philadelphia	8.3%
14 Amsterdam, Netherlands	8.0%
15 London	7.1%
Source: CB Richard Ellis