Upper 5th Avenue: New York, New York
New York’s Upper 5th Avenue remains the world’s most expensive retail street, narrowly ahead of Hong Kong’s Causeway Bay, but rental values have decreased in both as brands balance the demands of physical and online presences, according to Cushman & Wakefield.
The annual Main Streets Across the World report tracks 462 of the top retail streets around the globe, ranking them by their prime rental value utilising Cushman & Wakefield’s proprietary data. Now in its 28th edition, the report also includes a ranking of the 71 most expensive streets – the top one per country. This year’s report showed that 36% of all streets analyzed saw rental gains.
San Francisco’s Union Square: Number 3 in the United States:
San Francisco’s Union Square is still the third most expensive retail district in the United States – as it was in 2015.
Since 2010, The Bay Area’s booming tech economy has placed the region at the top of most retailer expansion lists and San Francisco has been the epicenter. As a result, San Francisco’s retail vacancy has remained among the lowest in the nation and rents have spent most of the last six years on a sharp upward trajectory.
According to Rhonda Diaz-Caldewey, a Managing Director who works for Cushman & Wakefield’s San Francisco Retail Services Group: “Despite the high cost of entry into San Francisco, retailer, food and hospitality demand remained high throughout the year. Rents continued to rise in early 2016; yet leveled off towards the second half of the year. ”
“While zoning issues in neighborhoods, pricey rents and key money requirements continue to be part of the transaction landscape, vacancy remains tight. Union Square sales transactions achieved record levels both in price and the number of buildings changing hands, including the Tiffany, Gucci, and the building that formerly featured the Saks Men’s store. “
The Focal Point of Luxury
Historically, Union Square has been one of the city’s major tourist destinations and the focal point of luxury retail brands.
Although demand has remained steady in Union Square over the past year, occupancy gains have been largely mitigated by a few shop closures.
In May 2016, Apple relocated its flagship store to a site on Union Square. Much of the activity of the past year has been driven by relocations or expansions which simply have not translated into real growth.
One market where considerable growth is being seen is the emerging Jackson Square neighborhood. This submarket has succeeded in luring cool new millennial-focused concepts as well as some luxury retailers due to its competitive rents, historic flavor and zoning advantages (most of it is exempt from San Francisco’s chain store law). Among the tenants that have inked deals here are Isabel Marant, Jake, Shinola, Filson, A.P.C., Guideboat and future Republic of Ritz Hansen.
Rents here will continue to increase thanks to continued strong demand and very little supply. Unfortunately, for landlords, this probably won’t be the case elsewhere.
Citywide vacancy will also climb with the 2017 delivery of a new 250,000 sq ft retail project in the Mid-Market area.
Look for rents to flatten in 2017, though they will only move backwards in a few trade areas. In the meantime, investors will continue to pursue and pay top dollar for premier San Francisco sites despite these challenges.