LONDON (REUTERS) - Insatiable demand among the global super-rich for swanky retail properties in Europe has driven rental returns on the best shopping streets so low they are not much higher than the safest government bonds.
As the wealthy shield cash from the hazards of the financial crisis in the world's most upmarket real estate, it has widened the gulf between the best and worst retail streets, a chasm already yawning under the influence of sluggish spending by the less well heeled and an exodus of shoppers online.
London's Bond Street is the most extreme example in Europe, according to property consultant Cushman & Wakefield. Yields, or the annual rent as a percentage of a property's value, were 2.75 per cent at the end of the first quarter this year. It is the first time yields have fallen below 3 per cent since the company's records began in 1991 on a street that includes Prada, Louis Vuitton and Cartier.
"The wealthy choose to buy parts of Bond Street like the rest of us buy a tie," said Mr Stephen Hubbard, UK chairman of property consultant CBRE. "The potential for rental growth is very good, so they are not stupid things to buy."
Ten-year benchmark British government bonds yields are about 1.7 per cent, according to Thomson Reuters data, while they are 1.25 per cent in Germany, 1.8 per cent in France and 4.2 per cent in Italy. Thirty-year bonds are about 3 per cent in Britain and France.
Investors typically seek higher returns from property than bonds due to the fact real estate takes longer to buy and sell and risks becoming vacant. Yields for the top office blocks in the major European cities are about 5 per cent.
With low interest rates keeping government bond yields down, many asset managers have returned to property, which had become something of a pariah asset class after the sub-prime real estate collapse triggered the global financial crisis.
The second-lowest figure was 3.25 per cent on Kaerntnerstrasse and Kohlmarkt in Austrian capital Vienna, followed by 3.75 per cent on Avenue des Champs Elysées in Paris.
The list of major European cities includes Zurich, Hamburg and Stockholm. Vienna matched its 10-year average, while all other cities were below.
Shop properties on the best streets attract such strong interest because the deal size is within the reach of wealthy individuals whereas an office block worth several hundred million euros is not, said Mr David Hutchings, head of European research at Cushman & Wakefield.
While many wealthy buyers remain anonymous, there is currently strong interest in Bond Street from Hong Kong, said Mr Jonathan O'Regan, director of central London investment at property consultant Savills.
It has driven prices up to 6,500 pounds ($12,200) per sq ft for the pricier jewellery section compared with about 1,000 pounds on King's Road in the select Chelsea district, meaning shops can change hands for between 20 million pounds and 100 million pounds, depending on size.
The proportion of Bond Street stores owned by British and Irish funds dropped to 39 per cent in 2011 from 96 per cent in 2006, according to Savills. The different nationalities in 2012 included Chinese, Qatari, Libyan and Danish, it said.