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C&W's Retail Market Beat - Q1 2025 Review

Cushman & Wakefield (C&W), a leading global real estate services firm headquartered in Chicago, has published its Retail Market Beat for Q1 2025. This comprehensive report provides insights into the current state of the retail market amidst rising economic uncertainties affecting consumer behavior and high-end product sales.

Economic Overview: Consumer Caution Amid High Prices

The report highlights a projected annualized decline of -2.1% in real GDP for the first quarter of 2025, attributed to increased imports amidst a rebound from the previous quarter. Although core CPI has come down from its peak of +3.5% year-on-year in January 2023, it remains high at +3.2%. Additionally, real income for working households in March has dipped by 2% year-on-year. While nominal wages are expected to rise at around 3% annually, the Consumer Confidence Index has experienced a four-month continuous decline, reaching a low of 34.1 in March—its lowest point in nearly two years.

Average national retail sales have also shown a slight decline, falling short of the rising core CPI figures. Breaking it down by categories, drug stores have seen an impressive 5.7% increase in sales, whereas department stores have experienced a slight decrease of -0.4%. The report attributes these trends to uncertainties surrounding global economic conditions influenced by U.S. import tariff policies and the corresponding effects on high-end product sales. Notably, tax-free sales are down 10.7% from last year, hinting at diminished high-value consumption from international tourists visiting Japan.

Rental Trends: Rising Average Rents and Expanding Prime Areas

In terms of rental markets, the average rents for prime areas have seen an increase bolstered by rising lower limits. Locations like Shibuya have seen lower limits soar by 25%, with Omotesando/Aoyama/Haruji showing a 20% increase, and Sakae experiencing an 11% rise from the previous quarter. With prime areas having limited availability, the high upper rent limits have kept demand afloat for relatively affordable properties in these regions. Surrounding prime areas have also displayed robust demand, leading to upward trends in both upper and lower rental limits, with locations such as Shinjuku witnessing a physical expansion of prime space.

New developments, such as the One Fukuoka Building set to open in April 2025, will provide retail space in areas that previously lacked such options, further expanding the prime landscape through strategic redevelopment.

Outlook: Navigating Forward Amid Global Uncertainty

With ongoing negotiations regarding U.S. import tariffs, the global economic outlook remains precarious. As of late April 2025, the yen has appreciated roughly 6% against the dollar since the end of Q1, which is expected to further suppress high-end consumption among international visitors. Prominent luxury brands, which have previously driven up prime rentals, now exhibit slowed expansion plans, resulting in forecasts of stable upper rental limits in prime areas.

Despite this, the scope for new openings in prime locations remains tight, leading some domestic apparel brands to adapt to these higher rent conditions similar to their international counterparts. Consequently, an increase in lower rental limits is anticipated, alongside a rise in average rent values. Additionally, several redevelopment projects in key districts such as Tenjin and Sakae are set to enhance the prime area's expansion further.

For more detailed insights and analyses, readers can access the full report in PDF format or review C&W's market reports via their official website.

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About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is one of the world's leading commercial real estate service firms listed on the New York Stock Exchange. With presence in around 60 countries and over 400 offices, employing approximately 52,000 professionals, C&W provides a comprehensive range of core services including facility management, transaction brokerage, valuation, tenant representation, leasing, and project management. In 2024, the company recorded a revenue of $9.4 billion, guided by their principle that "Better never settles," earning accolades for their award-winning corporate culture. For more information, visit Cushman & Wakefield's official website.