This a comparative structure and ‘de la rue/ de la classe’ etc are required. Il y a … is purely descriptive. English often will use ‘in’ instead of ‘of’ with this form of comparative, but French sticks to “ de “.

Just to spell out what Maarten explained:

C'est la rue la plus petite de la ville.

Thanks Chris - I meant to write “ de la ville “ but, oh well, it’s late here !

Yes it is the prettiest or smallest but not the only street in the town  --  this is why Maarten is right from a comparative point of view.