by Brianna Crandall — November 30, 2015—It has been said there are three things that matter in real estate: “location, location, location.” According to global professional services and investment management firm JLL, the cliché cuts to the chase: location is important and will certainly play a crucial role in a property’s pricing. But today’s investors would do well to memorize the following mantra: “location, industry, competition.”
JLL’s biennial study of the “Most Expensive Streets” across the United States emphatically substantiates those factors — with rents along these 42 thoroughfares up a collective 9.3% since 2013 and vacancies 50 basis points below the rest.
The JLL report says today’s real estate investors would do well to memorize the following mantra: “location, industry, competition.”
Location: Why investors care about their spot on the map
The Most Expensive Streets’ rents are 1.7 times higher than central business district (CBD) rent growth and 2.9% higher than overall rent growth. So what is the benefit to paying for premium?
In a market full of expensive streets, Manhattan’s Fifth Avenue is iconic. Not only do many financial, law and private equity firms hold leases along the street, the Avenue boasts international name recognition — an intangible factor that is difficult to price.
But location is not important solely for the heavy hitters: the Most Expensive Streets in mid-sized, business-friendly markets are rising in status. For example, limited construction and growing tenant demand is driving rent growth in Raleigh, NC (22.9%); Fort Lauderdale, FL (20.2%); Austin, TX (14.4%); and Salt Lake City, UT (14.2%).
Industry: Technology, life sciences and education steer the ship
Two years ago, Hamilton Avenue in downtown Palo Alto would not crack the top 10 “Most Expensive Streets” list. In 2015, it stands second only to fellow Silicon Valley street Sand Hill Road, and commands rent that is 198.6% higher than the market average.
“Walk down Hamilton Avenue and you’ll see it’s lined with tech companies and venture capital/private equity firms — it really is at the center of the Silicon Valley world,” says Hugh Scott, managing director with JLL’s Tenant Representation. “The surrounding streets are similar to Hamilton Avenue: home to tech tenants and located near Stanford University. But Hamilton Avenue simply has more office product than many of the other streets in and around downtown Palo Alto, and tenants are taking every opportunity to grab whatever space they can.”
Silicon Valley boasts the highest number of high-tech jobs in the United States, and the proof is in Hamilton Avenue’s vacancy rate: a mere 0.8%.
This speaks to the influence of industry, even beyond tech. For example, Philadelphia’s most expensive street shifted westward along Market Street across the Schuykill River to University City, the tightest CBD submarket (vacancy has dropped 1,380 basis points since 2013) due to the rise of life sciences, health care and education industries, while Los Angeles’ Avenue of the Stars caters to legal, financial and entertainment firms, out-pricing the market’s average street by 79.0%.
Competition: Bring A-game amenities
Boylston Street, located in Boston’s Back Bay, may not seem like an obvious pick for a most expensive street: retail and restaurants outnumber office buildings, points out JLL. But Boylston boasts high-profile properties and a highly anticipated development, 888 Boylston, which has already secured record high leases. In addition, Boylston’s tenant roster consists primarily of hedge funds, private equity firms and law firms. But streets cannot rest on their laurels, or a few big-name tenants: in order to attract and retain, amenities can make a major difference.
“Tenants will pay a little bit more in rent to have restaurants, retail, entertainment and residential right by the office — their employees are demanding this,” says Ben Heller, Managing Director with JLL’s Agency Leasing. “The ‘live, work, play’ dynamic is the real deal, and it’s being built up in other corridors in Boston such as the Seaport District. Going forward, surrounding amenities will play a huge role in where a tenant signs their lease.”
Further down the East Coast, Washington D.C.’s Pennsylvania Avenue has seen its vacancy rise 1,200 basis points due to moves to emerging submarkets and new developments. But redevelopments and renovations to existing product will bring new amenities to the street, which will help keep Pennsylvania Avenue competitive.
The Top 10 Most Expensive Streets
According to JLL, rents on these 10 streets cost the most on a per-square-foot (psf) basis:
- Sand Hill Road, San Francisco Peninsula: Dubbed “the Wall Street of the West” due to the presence of venture capital firms, Sand Hill Road remains at the top of JLL’s rankings for the third time in a row. Its 2015 average rent is $141.60 psf, up more than 27% in just two years.
- Hamilton Avenue, Silicon Valley: The rise of tech played a large role in Hamilton Avenue’s catapult to the second most expensive street. Add in restrictive planning ordinances and a transit-friendly, walkable environment and the appeal is apparent. Its 2015 average rent is $124.44 psf, up more than 31% in just two years.
- Fifth Avenue, New York: Although facing competition from creative space in Midtown South and rising micro-markets like Bryant Park and Columbus Circle, Fifth Avenue still leads the pack in New York, a city synonymous with large price tags. Its 2015 average rent is $119.27 psf
- Greenwich Avenue, Fairfield County: Although one of the least-urbanized streets in the top 10, Greenwich Avenue is known as the hub for hedge funds and also offers proximity to New York. Its 2015 average rent is $90.25 psf, down nearly three% from 2013.
- Mission Street, San Francisco: Mission Street makes its first foray into the top 10, driven largely by the rise of tech developments south of Market Street. Other contributing factors include the Transbay redevelopment and creative space in nearby properties. Its 2015 average rent is $89.58 psf
- Pennsylvania Avenue, Washington, DC: “America’s Main Street” commands international name recognition due to its location near the White House and U.S. Capitol buildings. Redevelopments and renovations of marquee buildings will drive rents and tenant demand. Its 2015 average rent is $72.65 psf, down from $75.83 psf in 2013.
- Boylston Street, Boston: High-profile properties and a broad range of tenants keep Boylston Street solidly among the top 10 Most Expensive Streets. Additional retail and hotel space is on tap to deliver on Boylston, which will keep the street competitive. Its 2015 average rent is $67.44 psf
- Avenue of the Stars, Los Angeles: While there is plenty of star power in Los Angeles, the Century City submarket is a pre-eminent hub for the highest-profile legal, financial and entertainment tenants. Its 2015 average rent is $63.12 psf
- Royal Palm Way, West Palm Beach: Royal Palm Way earned its nickname, “Banker’s Row,” due to the concentration of wealth management and financial services firms. Its 2015 average rent is $58.07 psf, which is actually down from the $58.52 psf it was two years ago.
- Newport Center Drive, Orange County: According to the market’s fundamentals, it may be the perfect storm for investors to check out Orange County’s top retail and office destination: Newport Center Drive is displaying vacancy near 11% and rent growth of 3.3% since 2013. Its 2015 average rent is $51.72 psf
For full report findings, please visit JLL’s America’s most expensive streets page.
