A new report from brokerage firm JLL titled City Retail recently published a list of the nation’s most affordable urban corridors, and the results may be surprising to some. The ranking was based on a combination of current lease rates along with their rate of appreciation. The corridors were all located in loosely-defined urban settings in prime areas that are nationally recognized shopping districts distinguished by their mix of high street, national and international tenants. Somewhat surprisingly, four of the top ten urban retail corridors on the list are located in the Bay Area.
Outside of Market East in Philadelphia, Wicker Park and Fulton Market in Chicago and Pike Street in Seattle, nearly half of the most affordable corridors were located in the cities across the Bay Area. The four on the list are the Marina in San Francisco, University Avenue in Palo Alto, Hayes Valley in San Francisco and Filmore also in San Francisco.
The Marina, which came in fifth on the list, offers a blend of retail and restaurants, with emphasis on boutique fitness studios and athleisure. Asking rents hover around $85 per square foot. University Avenue in the tony suburb of Palo Alto came in just behind The Marina. The area has non-chain boutiques and home goods stores with asking rents of $90 per square foot and annual rent growth of 7.9 percent. Hayes Valley ties University Avenue in average asking rent but has an annual rent growth of 4.7 percent. Lastly, in the Bay Area, the luxury laden retail corridor on Fillmore Street has an average asking rent of $115 per square foot, and an annual rent growth of 13.6 percent.
The report noted that the Marina, the most affordable prime urban retail corridor in the Bay Area, has a mix of unique retail and restaurant tenants with national chains such as lululemon, Athleta, Lucy, Nike and Soul Cycle moving in. “Retailers that once sought out space in the Hayes Valley or Fillmore corridors now look to the Marina with its similar demographic base,” according to the report. Typically, available retail spaces are smaller footprints or two- to three-story projects.
University Avenue in some way is competing against its neighbor to the west, just across the El Camino Real, the Stanford shopping center. Laura Tinetti, senior vice president with JLL’s San Francisco office, said that corridor is interesting, even in light of the competing retail offering at the shopping center. “[University Avenue] is cheaper than your rent at the mall because it’s triple net leases over there, but it is expensive for the street retail.”
With average asking rents today at $90 per square foot, Tinetti said the growth has been staggering over the last five years when that number was closer to $65 per square foot. “I just see that [lease rates will be] even more, it’s such a healthy street retail area, I can see that easily getting up to $110, definitely breaking the three digit mark in the next couple of years,” Tinetti said. “Spaces are more limited, and there’s only a couple of other places that you would want to locate in Palo Alto if you’re a retailer, and the [Stanford] mall is one of them but rent there is already higher.”
Outside of the Bay Area, the only markets and corridors that were recorded to be more affordable were Pike Street in Seattle (3rd), Wicker Park in Chicago (2nd) and Market East in Philadelphia (1st).
In Seattle, the Pike Street corridor is booming with plenty of shopping and restaurant offerings. The corridor is positioned between two key business zones and serves traditional office workers in the central business district as well as people in the technology sector in the South Lake Union neighborhood, where Amazon continues to grow its presence among neighbors Bill and Melinda Gates Foundation, the Allen Institute, Google and Facebook. According to the report, these prime urban corridors serve as one of the best places to communicate a brand message, since they are often one of the top tourist destinations of a city. The average asking prime retail rent for the Pike Street corridor was $65 per square foot last year, with annual rent growth of 18.2 percent.
“Even though we might be in the top ten for lowest rents, I think that’s a broader picture going on,” Tinetti said. “[Bay Area] rents are definitely higher than they have been, and the market is really healthy, they’re definitely prime retail rents.” But Tinetti said she doesn’t anticipate rents continuing to soar much longer. “I think in San Francisco proper, we’re going to see more stabilization,” she said. “The rate that it’s increased over the last few years isn’t sustainable.”