“The rent is too damn high,” goes the motto of a New York City political party bemoaning the cost of housing there.
Retailers could say the same about the Big Apple, which according to commercial real estate company Cushman & Wakefield, is home to four of the 10 most expensive places in the world, and other hot shopping spots in major “gateway” cities, like Paris, London, Miami and Hong Kong.
In the case of New York, the surge in rent is the direct result of a 50% increase in the number of visitors to New York (expected to hit 56 million this year) since 2002, and the fact that retailers, luxury and otherwise, see having an address on one of the world’s hottest shopping strips as essential for its brand equity.
Why else would a retailer like teen clothier Forever 21 open a 90,000-square-foot—that’s about two-thirds the size of an average Macy’s (M) department store—in the heart of Times Square, where retailers paid on average $2,300 per square foot in 2014: that’s exorbitant for a retailer selling $9 jeans. That compares to about $30 a square-foot for the U.S. a whole.
Other retailers have made it clear that so-called gateway cities will be their prime focus: Coach (COH) said last year it would close 20% of its North American stores to focus on those location in top cities. The same holds abroad: Abercrombie & Fitch (ANF) chose to open mammoth stores to serve as the brand’s flagship when it entered Europe. And Tiffany & Co (TIF) chose the Champs-Elysées, which is home to few jewelers, for its Paris flagship.
Last week, at the National Retail Federation’s annual convention, David Zoba, head of real estate at Gap Inc (GPS), told Bill Taubman, whose family runs a namesake mall development company, that retail rents were rising too quickly and would break some retailers. Who knows if he’ll get relief at the nation’s shopping malls. But he shouldn’t expect any relief in the world’s most coveted retail strips, particularly in city centers which are magnets for the biggest names in luxury and retail.
“You’re going to see cities grow. It’s going to expand—I expect rents to rise. It’s simple supply and demand—there’s endless demand and not enough supply,” Gene Spiegelman, a vice chairman at Cushman & Wakefield, told Fortune.
Rents in places like New York, Hong Kong, Paris, London, Shanghai and Tokyo should keep rising, he added
Here is a look at the 10 most expensive shopping strips for retailers, as measure by sales per square foot per study. Here is the full study, with details per region.
1 Upper 5th Avenue, New York City
Average annual rent: $3,500 per square foot
This strip, home to world famous stores like the Bergdorf Goodman emporium and the flagships of both Saks Fifth Avenue and Tiffany, is the most expensive anywhere for retailers.
It’s a constant mob scene, with record numbers of tourists shopping til they drop at stores from the high end, like Bergdorf and Fendi, to the lower end, like Uniqlo and Gap.
Such is the popularity of this area, that a recent assessment found Saks’ flagship is worth $3.7 billion. That’s one single store.
Even middling retailers seem to do well there: Abercrombie & Fitch’s Hollister store might be struggling in the malls of middle America, but on Fifth Avenue, it boasts big lines.
2 Hong Kong, Causeway Bay
Average annual rent: $2,735
The shopping mecca within a shopping mecca, Causeway Bay in Hong Kong, is the first choice for Western retailers looking for a foothold in Hong Kong. And price seems to be of no matter: last year, Swedish fast fashion retailer H&M agreed to pay $770,000 a month to relocate its flagship there by mid-2015, nearly double its previous rent at a nearby location.
Causeway Bay is also home to world-famous retailers like Japan’s Sogo department store. And it was the theatre of some of the Occupy Hong Kong protests last year that hurt sales at Western retailers like Coach and Tiffany, among others.
3 Times Square, New York
Average annual rent: $2,300
Times Square, the crossroads of the world. The former epicenter of New York’s vice is now basically an outdoor mall at the heart of the largest U.S. city, home to more and more retailers spending fortunes on having big stores there. Exhibit A: Forever 21 and its department-store size location. But also flagships for Disney, Levi’s, and even Hershey’s.
It’s no surprise: some 300,000 pedestrians go through Times Square each day, and the place is a must of every tourist New York, and even a few jaded locals.
4 Central, Hong Kong
Average annual rent: $2,164
The Central area is in Hong Kong’s main business district, and home to its financial industry, making it a top shopping destination for shoppers from around the world, including Chinese from the mainland who prefer to go shopping when on vacation rather than at home. The Landmark mall in Central is home to the flagships of luxe chains like Louis Vuitton, Prada and Bulgari, while nearby Pacific Place mall is home to many others as well.
5 Tsim Sha Tsui, Hong Kong
Average annual rent: $2,063
Home to Asia’s biggest Toys R Us store, the Tsim Sha Tsui district may be less coveted than its cross town brethren, but it is host to such brands as Swatch, Ralph Lauren (RL), Versace and Jimmy Choo.
6 Champs-Elysées, Paris
Average annual rent: $1,556
Such is the lure of the Champs-Elysées in Paris, that even a storied brand like French handbag maker Longchamp succumbed and recently opened a flagship there.
Tiffany & Co is another of the luxury retailers to set up shop on an avenue that many Parisians dismiss as a tourist trap. But that doesn’t matter- it’s not the locals that these retailers are targeting, but tourists in the most visited city in the world. Longchamp CEO Jean Cassegrain told Fortune that the flagship was essential for catering to Chinese tourists, while other stores were more geared to French customers.
7 Madison Avenue, New York
Madison Avenue in the 60’s may be less crazed than Fifth Avenue or Times Square in terms of tourist traffic. But it certainly one of the most coveted spots in New York, located as it is near where many of the richest people in the world live.
In addition to Barneys New York, it boasts the flagships of Tory Birch, Hermès, and Jimmy Choo. But it’s also re-inventing itself—Fendi just opened a new fancy emporium on the avenue, while Ralph Lauren recently opened a flagship for its Polo brand.
8 New Bond Street, London
Average annual rent: $1,216
New Bond Street in London just added to its list of luxury tenants as high end horlogier Philippe Patek opened a store there, across from Louis Vuitton’s flagship. Other shops include those of jewelers Cartier, Breitling and Piaget, and fashion icons Alexander McQueen and Christian Dior, among many others.
9 Pitt Street Mall, Sydney
Average annual rent: $1,016
The area in Australia’s financial center boasts 8 malls and 600 stores, running the gamut from Tag Heuer and Gucci to H&M and Zara, with much of the space reserved for pedestrians. The mall attracts tourists from across Asia, especially the Chinese, who have been a boon for luxury spending worldwide outside of China.
10 Lower 5th Avenue, New York
Average annual rent: $1,000
The more southern part of Fifth Avenue in Manhattan, from Washington Square Park to the Flatiron Building, is full of specialty fashion boutiques in seven-story buildings, a far cry from the massive stores uptown. The area’s cool quotient also gets a boost from the Eataly eating emporium.
Just to show you how expensive New York is within the U.S. in terms of retail rent, the next most expensive shopping strip is Rodeo Drive in Beverly Hills with annual rent of $675 per square foot, and San Francisco’s Union Square at $650.