Retailers Pay Big for Prime Locales

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High gas prices make driving to the mall less appealing. Big-city streets are vibrant and exciting, and wealthy shoppers still have money to spend, says Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm. "If you have a wealthy customer base, you're much better off," Davidowitz says. The affluent "simply are not in crisis.… There is a pullback across the board. But you're much better off being on an urban luxury street than a suburban department store."

And unlike the suburbs, shopping space is limited in cities and especially on iconic avenues such as Rodeo Drive or the prime stretch of Fifth Avenue, from 51st Street to 59th Street. "It's classic economics," says Ross Moore, senior vice-president of research for Colliers. "There is only one Fifth Avenue and there are only [a handful of] blocks that everybody wants to be on."

Chain Reaction

Many of these streets have changed over the decades with the addition of large chain stores such as Nike (NKE), H&M (HEMS), and Gap (GPS), which pushed out some of the smaller boutique stores with a high-price, low-volume model.

Fifth Avenue stores such as the Apple Store (AAPL), Abercrombie & Fitch (ANF), and Saks Fifth Avenue do hundreds of millions of dollars in sales each year and are among the chains' best performers, says Jeffrey Roseman, executive vice-president of real estate consultancy Newmark Knight Frank Retail in New York. "These are mind-boggling [sales] numbers," Roseman says. "All you have to do is stand outside Abercrombie or Apple and you'd think they're truly giving stuff away."

Withstanding the Downturn

But even high-end streets aren't immune to a downturn. A stock market crash or a strengthening dollar could force retailers to rethink the rents they're paying. "At some point we might see these rents either peak…and in some cases, they might come down," says Gene Spiegelman, executive director of Cushman & Wakefield Retail Services in Manhattan.

But Cohen of NPD Group believes the streets might be able to withstand a downturn because very few economic conditions hurt prime, luxury locations.

Michael Lemanski, manager of Trident Booksellers & Cafe on Boston's tony Newbury Street says retailers pay a premium to be close to stores that can afford similarly high rents. It's not good enough for a retailer to be nearby a street like Newbury; it needs to be smack on it, he says. "This is such a desirable street," Lemanski says of Newbury, where the average asking rent is $185 per square foot. "Because you have a lot of high-end stores, most of the people who come here tend to have a lot of disposable income."

Check out the BusinessWeek.com slide show to see the most expensive shopping streets in the U.S.

Gopal writes about real estate for BusinessWeek.com in New York .