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Why Retail Flagships are No Longer Hot Property

Fashion district flagships, once considered a traffic and advertising necessity, are losing their importance to retailers.
Fifth Avenue, Manhattan, New York | Source: Shutterstock
By
  • Bloomberg Gadfly

NEW YORK, United States — Some of the world's hottest shopping destinations, sometimes referred to as "high streets," are losing elevation.

Popular retail real estate locales, from New York City's Fifth Avenue to Hong Kong's Causeway Bay shopping districts, saw rents fall this year, according to a new report by real-estate services firm Cushman & Wakefield, as retailers have finally started to balk at high rents.

For the first time since the financial crisis, rent fell on Upper Fifth Avenue — the most expensive retail property in the world — from $3,500 per square foot in 2015 to $3,000 this year. Vacancy rates, meanwhile, jumped to 15.9 percent from 10 percent a year earlier.

Fashion district flagships, once considered a traffic and advertising necessity, are losing their importance to retailers. It's not that they're unpopular. Rather, sales at these top locations haven't kept up with rent, and retailers are under extreme pressure to cut their operating expenses, according to Cushman & Wakefield retail research VP Garrick Brown.

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Sales at these top locations haven't kept up with rent, and retailers are under extreme pressure to cut their operating expenses.

Retailers can shave thousands of dollars per square foot from rent simply by relocating to nearby areas — Cushman & Wakefield refers to these as "cool streets" rather than "high streets." For retailers in New York, that means lower Manhattan and Brooklyn may be smarter locations.

Sales and earnings at North American department stores and specialty retailers are declining — meaning retailers have to cut costs, even if that means lessening their presence in prime locations.

These high-profile flagship stores function as brand advertisements and see substantial foot traffic, so they're not going to disappear en masse. However, with shopping increasingly moving online and a strong dollar eating into foreign purchasing power, retailers will get a lot choosier about their top real estate.

By Rani Molla in New York; editor: Mark Gongloff. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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