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Fall 2009 Retail Report
October 15, 2009
Average asking rents have declined in most of the retail corridors surveyed, according to our Fall 2009 report, reflecting the impact of the global recession on the local economy as well as a market correction from all-time high retail rents.
High traffic, high profile areas such as Times Square and Fifth Avenue and trendy locations like Meatpacking and SoHo have continued to fare relatively well.
Major retail stores are doing better in their urban locations, such as New York, than they are doing in their suburban mall locations, according to our Advisory Group.
There continues to be activity in the marketplace, as tenants like Kohls, TJMaxx, Whole Foods, Nordstrom, CB2 and Trader Joes are looking for initial or additional locations.
More importantly, deals are being done, such as MAC Cosmetics and Swarovski in Times Square, Espirit on 34th Street, J. C. Penney in Herald Square, Nordstrom Rack in Union Square, and Duane Reade and CVS throughout the city. In addition, restaurants, especially quick service and sandwich shops, are also opening all over town.
However, the lack of capital financing for tenant improvements, typically high in retail stores ($200 per square foot is not uncommon), has been a mild drag on activity and deal-making.
One positive aspect of the decline in asking rent is the return of tenants (Citibank, Apple Bank, Apple and Beach Bum Tanning) that were priced out of New York two years ago during the surge in retail rents. In addition, other tenants see this as an opportunity to find more prominent locations on popular retail corridors.
Retailers in the market can expect to find owners offering more free rent and work to induce tenants to make deals now than they were two years ago.
Preparing an accurate and reliable retail report in the current market has been challenging.
The economic downtown has created enormous uncertainty in establishing asking rents for available space in virtually every neighborhood.
In reviewing the available listings, we noticed in some instances owners had not changed the asking rent for their space since the market downturn.
According to our Advisory Group, in prime locations where demand is still strong and vacancies are few, like Times Square and upper Fifth Avenue, asking rents in-line with the height of the market may still be appropriate.
In other instances, owners recognize the change in the economy, but until the market stabilizes they are unwilling to guess about what the new asking rent should be. In other situations, owners want to retain a higher base rent but are prepared to provide incentives that would lower the effective rent to a level where a deal is achievable.
As always, our report is based on the analysis of the asking rents for the available listings we have received from the members of REBNY’s Retail Committee and the knowledge and insight of our Advisory Group.
With their assistance, we have been able provide you with a more complete understanding of the report’s data and the activity in the retail market during these turbulent times.