A Renewed Rodeo Drive, a New Appetite for Luxury
A surge of spending on luxury goods is sending ripples down Rodeo Drive, where rents have reached a new level and landlords are burnishing their jewels.
Several luxury boutiques have opened in the year since Beverly Hills completed an overhaul that widened the sidewalks and medians of the opulent thoroughfare and added new palm trees, street lights and crosswalks.
The latest to make a splash is Prada. The Italian fashion house opened a three-story store last month that reportedly cost $40 million and has locals buzzing about such provocative design elements as glass dressing-room walls that turn opaque at the touch of a button.
The rest of the street is humming, too, with the appearance of new stores and upgrades by established barons of the boulevard who want more of the action in the improving top tier of the economy.
“We went through a lull after 9/11,” said real estate broker Chuck Dembo of Dembo & Associates. “Now there is lots of momentum, and the street has been elevated to a much higher level of international appeal and excitement.”
In addition to Prada:
* Dolce & Gabbana, the avant-garde clothier, recently doubled its space at 310 and 312 N. Rodeo to 12,000 square feet.
* Across the street, accessories purveyor Coach signed a lease for about $25 a square foot a month, the new rent plateau for prime space; that’s up 25% from the late 1990s.
* London developer Grosvenor is erecting a speculative four-story building at 308 N. Rodeo that it hopes to lease to a single tenant when it’s completed this fall.
“People in California are starting to spend,” said Pierre Rolin, a London-based investment manager and Rodeo landlord.
The high end of retailing has outperformed the rest of the industry over the last two years. In July, for example, sales at luxury department stores open at least a year rose 9.1%,according to the Lazard Freres retail index. That compared with a 2.6% increase for the industry as a whole last month.
A complex known as Two Rodeo, owned by Rolin’s Strategic Real Estate Partners, provides a case study of sorts on the turnaround on Beverly Hills’ most famous street.
Strategic bought the complex, a luxury retail center at Rodeo and Wilshire Boulevard, in 2000 from a Japanese owner, who had struggled to pay for maintenance and improvements before selling it at a $70-million loss.
“The tenants weren’t happy” at the time, Rolin said, and some left. Among the departed were Christian Dior and Valentino, which moved to other locations on Rodeo Drive.
Strategic embarked on an $18-million upgrade and marketing program for Two Rodeo that is still underway but has already yielded results: Jeweler Tiffany & Co., the largest tenant, agreed to renew the lease on its three-level, 18,000-square-foot store for about $35 million, a 20% increase over 15 years.
“Having exposure on Rodeo as well as Wilshire is important to us,” said Cathryn Ramirez, Tiffany’s regional vice president. “It’s always been one of our premier locations.”
Fashion house Versace will expand to 9,000 square feet at Two Rodeo in a seven-year, $8.3-million deal. Gianfranco Ferre renewed the lease on its 7,000-square-foot store for five years for $3.5 million, said Scott Sweeney of Falcon Real Estate Investment Co., which manages the property.
New tenants include Gucci Fine Jewelry and Vilebrequin, which makes custom swimwear for men. Glassmaker Lalique will arrive in January.
Two Rodeo is about 85% occupied, Sweeney said, up from 75% since the downturn in luxury retail sales that followed the Sept. 11, 2001, terrorist attacks. In the last year, sales in the center climbed 20%, he said.
Upscale retailers are no longer willing to wait years for their stores to become profitable and frequently rent smaller shops than they did in the past to keep their overhead down, said Newport Beach retail consultant Hanna Struever. She recommended that Two Rodeo turn three large spaces into five smaller ones. Lalique, for instance, will take half of what had been the Christian Dior store.
Other luxury boutiques that have arrived on Rodeo Drive in the last year include Brooks Bros., Yves Saint Laurent and St. John. French watchmaker Cartier is building a store on Rodeo, said Todd Steadman, director of economic development and government affairs for the Beverly Hills Chamber of Commerce.
Despite the current boom, activity on Rodeo hasn’t reached the level it did in the late 1980s and early 1990s before the Japanese recession, said retail consultant Aubie Goldenberg of Ernst & Young. “We’re not back to the heights some merchants remember,” he said, but he expects the picture to continue improving.
