High-end retailers tie up Rodeo Drive: fewer vacancies, high rents signal rebound.

The wealthy have started to feel better about the economy.

What other conclusion to draw from the spate of high-end retail leasing activity along Rodeo Drive in Beverly Hills, coupled with a 14 percent rise in storefront rent?

Five leases have been signed over the last two months in the two-and-a-half block commercial stretch, with retailers Swatch, Michael Kors and Coach paying as much as $25 per square foot per month for their space.

With but two vacancies left on Rodeo, the tony, strip has all but completed a turnaround from 2001, when there were a half-dozen vacancies and rents topped out at $22.

"There's a lot less retail uncertainty today than there was three years ago," said Richard Giss, partner in the Los Angeles office of Deloitte & Touche. "We have a solid retail environment. I wouldn't call it strong, but it has been at least predictable."

Tumbleweeds weren't exactly rolling down Rodeo Drive three years ago, but the street had its share of vacancies as retailers hesitated to invest in the area in the wake of the Sept. 11, 2001 terrorist attacks, the dot-com bust and a decline in tourism.

"Rodeo was in a slump," said Chuck Dembo, principal of Beverly Hills-based commercial real estate brokerage Dembo & Associates. "Travel was turned off, visitors weren't coming, and there were a lot of shockwaves being sent through the luxury goods sector."

After 9/11, spaces that were already vacant remained so for some time, said Jay Luchs, a vice president at CB Richard Ellis. But now, Italian clothier Etro is opening Aug. 1 at 461 N. Rodeo, taking space that had been vacant for more than a year. Brooks Brothers, which opened last summer at 468 N. Rodeo, filled a space that had sat empty for more than two years.

Optimism rebounds

In the latest round of leasing, the Swatch Group has signed a 10-year lease for 1,992 square feet at 327 N. Rodeo Drive, where, in spring 2005, it will open the first U.S. store for its high-end Omega watch and jewelry line.

Michael Kors, a designer of men's and women's clothing and shoes, plans to open a 3,199-square foot store in September at 360 N. Rodeo Drive. Roberto Cavalli, which sells men's and women's clothing and accessories, signed a lease for 3,800 square feet at 362 N. Rodeo Drive and also is slated to open in September.

At 325 N. Rodeo Drive, Coach will open a 4,200-square-foot store, taking space from women's fashion designer and retailer BCBG, which is moving to the 400 block. Build-out of the Coach store is set to begin in early 2005.

"The overriding factor was the piece of real estate we were able to procure," said Mike Devine, chief financial officer for New York-based Coach, who noted that the retailer had been scouting Rodeo Drive for some time.

The new store will allow Coach to showcase its entire product line, including footwear, scarves and other outerwear, as opposed to simply being a handbag boutique.

While rents are high, Devine said, "We're confident the demographics of Rodeo will allow us to meet our financial hurdles."

The two remaining vacancies on the street are at Two Rodeo and 308 N. Rodeo, which is under construction. Luchs, who has the listing on 308, said discussions were under way with two potential tenants.

Asking rent for the three-story, 15,000-square-foot property is $25 per square foot for the ground floor and $3 per square foot on the upper floors, Luchs said.

Two Rodeo, former home to both Valentino and Christian Dior, which have relocated to other Rodeo locations, is partially occupied by glass house Lalique.

A comeback

Robert Cohen, an executive vice president at Futterman & Associates, the New York real estate brokerage that represented Swatch, said Rodeo has laced more hurdles than other shopping destinations.

"It was hurt because it is so tied to luxury," he said, noting that other areas, such as SoHo in New York, benefited from having a mix of offerings. "SoHo had so much more diversity. They had the ability to pick up other pieces of the puzzle, like restaurants and galleries."

While the high-end retailers that shape the character of the strip were likely to return at some point, the city has been touting its $18 million rehabilitation that includes wider sidewalks and more mid-block crosswalks.

While Rodeo certainly looks better, it's unclear whether this beautification will impact rents. "No one's going to know for sure of the specific result," said Dembo. However, he added that the wider sidewalks will attract more pedestrians.

"More people on the street means more retailers are willing to come in. The fact that they enlarged the sidewalks isn't the main reason for luxury retailers to come to Rodeo."

It's the undeniable cachet associated with the address that allows it to weather brief leasing lulls.

"There are a number of signature retail addresses, and Rodeo Drive is one of them," said Giss. "It's known throughout the world. It's like saying you're on Fifth Avenue in New York or the Champs Elysees in Paris."

One sector that has helped to fill Rodeo Drive vacancies is accessories, said Cohen, who described it as "a feel-good business."

Whether it's accessories or other types of business that fuel Rodeo's future growth, the street's comeback is likely to stick, said Giss.

"The only thing that could chill Rodeo Drive is not having the hallmark retailers that they have, and they continue to have those in spades," he said. "If you're a big name in retail at the high end, you're on Rodeo Drive. It will always command a premium."