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Rents Rise in Trophy Retail Districts, But Will Tenants Pay?

Rents Rise in Trophy Retail Districts, But Will Tenants Pay?

Rents are rising in many of the nation’s best-known trophy retail districts. Of the 13 markets tracked in the U.S. and elsewhere in the Americas in a report by brokerage CB Richard Ellis (CBRE), seven posted rent increases in the past 12 months. But as rents climb in these exclusive districts, and more national retailers move in, some tenants are balking at paying the higher prices.

New York’s Fifth Avenue leads the way with the world’s highest retail asking rents at $1,650 per square foot for ground-floor space, representing a 6.2 percent jump over 2009. Meanwhile, asking rents along Boston’s chic Newbury Street in the Back Bay area rose 9.1 percent in the 12-month period ending in the second quarter 2010. On M Street in Georgetown in the District of Columbia, asking rents climbed 8.8 percent over the same period.

Those lofty figures compare with a national average asking rent of $19.07 per square foot for community and neighborhood centers combined in the second quarter, according to New York-based research firm Reis. The national rate represents a 1.0 percent drop from the same period a year earlier.

“Recovery isn’t complete, but the findings show an increase in demand and activity in the top retail locations in the Americas,” says Anthony Buono, executive managing director of CBRE’s Retail Services. “It depends on the market and the city.”

Although the super-luxury markets are trending up in their rent demands, current and prospective tenants may not be willing to shell out higher monthly payments. “Many landlords and real estate companies have taken an overly optimistic view of the economic recovery and started to request higher rents,” says Tami DeFrank, vice president and director of real estate with Jones Lang LaSalle’s San Francisco office. “We don’t believe that the tenants are willing to pay increased rents at this time.”

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