Location. Location. Location. In many minds that sums up what makes a prime real estate property worth the premium price. But savvy investors know there’s more to the story.
Prime location is all about finding the right home among companies of a similar kind with all the nearby amenities that make for a happy workforce. And it’s something that both investors and tenants are willing to pay for.
As JLL’s biennial study of the U.S.’s Most Expensive Streets shows, the rents on 42 high profile thoroughfares around the country are 1.7 times higher than CBD rent growth. Meanwhile, vacancy rates are 50 percent lower than the rest.
So what’s their secret? Here are five factors behind their success:
Think Fifth Avenue in New York City and iconic images spring to mind. This street’s long-standing international reputation and strong name recognition are bolstered by the fact that many financial, law and private equity firms are leaseholders there.
2. Limited supply and plenty of demand
Firms want to be where the action is for their industry but often there’s not much scope to expand. This is especially true in business-friendly mid-sized streets around the U.S. where limited construction and rising tenant demand are behind double digit rent growth in cities such as Raleigh, Austin, Fort Lauderdale and Salt Lake City
3. A tech hotspot
Stroll down Palo Alto’s Hamilton Avenue and you’ll quickly realize why this Most Expensive Street is second only to Sandy Hill Road – Silicon Valley’s most prestigious thoroughfare – in stature, and easily fetches rents almost 200 percent higher than market average, with a vacancy rate of only 0.8 percent.
“Hamilton Avenue is lined with tech companies and venture capital/private equity firms – it really is at the center of the Silicon Valley World,” says Hugh Scott, JLL’s Tenant Representation Managing Director. “Similar streets are also home to tech tenants and located near Stanford University. But Hamilton Avenue has more office product than many other streets in and around downtown Palo Alto and tenants are taking every opportunity to grab whatever space they can.”
4. A thriving industry scene
It’s not just the tech industry playing a role in creating the U.S’s most expensive streets. An example: Philadelphia’s most expensive street moved west along Market Street across the Schuykill River to University City, the city’s tightest CBD submarket because the vacancy rate has plunged since 2013 due to the skyrocketing number of life sciences, healthcare and education industries.
Another case in point: Los Angeles’ Avenue of the Stars is outpricing the market’s average street by 79 percent by catering to legal, financial and entertainment firms.
In order to attract and retain tenants, amenities can make a major difference. Boston Back Bay’s Boylston Street may not spring to mind immediately as a most expensive street, because retail and restaurants outnumber office buildings. But Boylston has racked up high-profile properties and a highly anticipated development, 888 Boylston, which commands record high leases.
And in Washington D.C., developments in emerging submarkets have led to more vacancies along Pennsylvania Avenue. But redevelopment and renovations to existing buildings will bring in new amenities that will keep Pennsylvania Avenue competitive.
“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 at JLL’s Agency Leasing. “Going forward, surrounding amenities will play a huge role in where tenants sign their leases.”