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JLL reveals the most expensive streets across the United States
CHICAGO, Nov. 17, 2015 - It's been said there are three things that matter in real estate: location, location, location.
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 percent since 2013 and vacancies 50 basis points below the rest.
Location: Why Investors Care about Their Spot on the Map
The Most Expensive Streets' rents are 1.7 times higher than CBD rent growth and 2.9 percent higher than overall rent growth. So what's 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's difficult to price.
But location isn't 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 (22.9 percent), Fort Lauderdale (20.2 percent), Austin (14.4 percent) and Salt Lake City (14.2 percent).
Industry: Tech, Life Sciences and Education Steer the Ship
Two years ago, Hamilton Avenue in downtown Palo Alto wouldn't 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 percent 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 U.S. and the proof is in Hamilton Avenue's vacancy rate: a mere 0.8 percent.
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 percent.
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. 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 basis:
For full report findings, please visit: http://www.us.jll.com/expensivestreets.
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For more news, videos and research resources on JLL, please visit the firm's U.S. media center Web page: http://bit.ly/18P2tkv.
About JLLJLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $57.2 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.