An address is more than a location. It's a brand.
That's what the CEOs of Tiffany & Co, Bergdorf Goodman and Harry Winston presumably know. Their flagships are situated on Fifth Avenue between 56th and 58th streets in Manhattan, arguably the most coveted retail stretch in the world.
Retailers looking to call Fifth Avenue (between 59th and 42nd streets) home can expect to spend $1,500 a square foot to land the address, according to Cushman & Wakefield, an international real estate investment group that provided the data for this story. To put that into context, many shops on that stretch are around 20,000 square feet, making annual payments about $30 million a year at market rate.
Pretty pricey. But even as stock prices and consumer confidence slide, there aren't many signals to suggest that the world's elite addresses, like New Bond Street in London, Ginza in Tokyo, Bahnhofstrasse in Zürich, Switzerland, or Avenue des Champs-Elysees in Paris are showing signs of strain.
This month, Abercrombie & Fitch signed a lease for 90,000 square feet at 666 Fifth Avenue (at 53rd Street) and agreed to pay over $2,000 a square foot. British retailers Topshop and Reiss are in the midst of an international expansion, especially in the US, and Apple opened its first flagship store in London.
Still, that doesn't mean retailers aren't aware of the slowdown.
"People are using a slowdown as a negotiating tool," says Jeffrey D Roseman, executive vice president of Newmark Knight Frank Retail, the New York arm of the London-based firm. "But once it's all said and done, retailers are not necessarily losing business from it. The folks buying the $5,000 or $10,000 suits, or $1,000 shoes aren't as affected by what's going on in the world."
Another reason for the luxury insulation, especially in Europe, has to do with the lack of luxury shopping outlets in those countries. While a major US city might have a few prime shopping districts and be surrounded by three or four major malls, that's often not the case in Europe.
There, "the shopping is concentrated in the urban centers," says Gene Spiegelman, the executive director of retail services at Cushman & Wakefield. "As a result, the European downtowns still get every type of shopper."
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In Asia, Hong Kong is home to luxury shoppers. Foreigners can visit on a passport, and Chinese can travel freely to the city because of its status as a special administrative region. Guess where the huge shopping districts for Chinese and international wealth form as a result? In Hong Kong's Causeway Bay, a district built on fill, retail goes for $1,213 per-square-foot per year.
While many high-end retail locales are bucking the downward real estate and global growth trends, prime office addresses haven't been quite as resilient.
London is the world's most expensive office market. There are three markets within it--the City, the West End and Midtown--which are all more expensive than any office space in Manhattan, going for $129, $259 and $119 a square foot, respectively. In parts of Midtown Manhattan, the going rate for office space is $100 per-square-foot, per year, according to Cushman & Wakefield. This rate beats London's fourth most expensive market, Canary Wharf, where space commands $84 per-square-foot per year.
But the same global economic forces that have driven growth in London can also slow it down. The UK's gross domestic product has fallen to 0.4 per cent, dangerously close to recession territory; inflation is above government targets; and investors seeing poor returns are pulling out their money. Cloudy skies, indeed.
"London is primarily an office market," says James Fetgatter, the chief executive of the Association of Foreign Investors in Real Estate, a research group for cross-border commercial and residential investors holding $700 billion in property. "Some of the return and yield numbers from London are in negative territory."
Based on numbers from Knight Frank, London's prime office space is down 10 per cent in year-over-year terms, and investment turnover is down to $4.1 billion from $7.8 billion last year, a 46 per cent drop.
While the highest-end properties continue to hold out, the big questions for the remainder of 2008 and into 2009 are how long properties, retail and office can hold up in the face of a global economic slowdown as investors and businesses alike start to feel the pinch.
But no matter how much you worry about real estate, it's safe to think that the gravitas of places like Ermou Street in Athens, Greece, or Grafton Street in Dublin, Ireland, along with Fifth Avenue in New York, will hold their value longer than adjacent neighborhoods.