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Fall 2010 Retail Report
October 20, 2010
Our Retail Advisory Group reports a noticeable increase in retail tenant interest and competition for space. This tenant interest has led to an increase in asking rents and activity in Manhattan particularly for space in major retail corridors, such as those highlighted in our report.
The asking rent for all available space in Manhattan increased 4 percent to $118 psf since spring 2010. Similarly, the Midtown and the East Side neighborhoods saw the average asking rent for all available space increase 10 percent to $149 and 9 percent to $180 since the spring of this year.
However, beyond the popular and wellknown shopping corridors highlighted in our report, our group points out that vacancies persist and rents have remained flat in many smaller, local shopping areas.
The financial crisis that occurred in the fall of 2008 had a dramatic impact on the net wealth of consumers leading to a severe decline in retail sales. During that uncertain climate retail tenants halted any planned expansion, especially the opening of new stores. By mid-2009, the economy slowly and unevenly emerged from the recession and consumers began to loosen their purse strings. Retail tenants recognized it was an opportunistic time and began to re-enter the market looking for affordable space or for an opportunity to move into a more exclusive area for their expansion plans.
This pick up in activity brought about healthy competition for available space and improved the retail market. A handful of retail corridors saw a significant boost in lease signings, according to our Advisory Group. Madison Avenue saw a sharp decline in the number of available stores and asking rents have improved modestly from a year earlier. With a lower price point than upper Fifth Avenue, Madison Avenue owners benefited from a migration of tenants that wanted a high profile address at a more reasonable price. Fifth Avenue continues to be strong with little availability. Uniglo committed to lease 90,000 square feet at 666 Fifth Avenue, said to be the largest retail lease in Manhattan.
Another area to benefit from this competition for space was lower Fifth Avenue (42nd to 49th Streets). At the height of the market, H & M and Zara had opened showcase stores at 42nd Street. These stores anchored this stretch of Fifth Avenue, creating energy and necessary co-tenancy for other retailers to consider flagship locations south of 49th Street and bringing leasing activity further south. Large blocks of space were assembled to cater to the growing demand and recent deals include Guess, Urban Outfitters and Syms/Filene.
These transactions send a strong signal of optimism in the retail brokerage community.
In addition to healthy competition, another boost for the retail market has been the resurgence of tourism and the weak dollar. Though
hotel rates have not rebounded to the highs of a few years earlier, hotel occupancy has. Tourists spending less money on hotels, combined with
a purchasing power boost from the weak dollar, has led to increased retail activity in areas visited by tourists. As a result, Times Square and 34th Street Herald Square now have limited availability. SoHo has emerged as a strong and popular retail market. Similarly, we have seen the evolution of the Meatpacking District and the West Village as a solid and desirable location for shoppers and stores.
A retail trend that has improved demand is the emergence of “Fast Fashion”, such as H & M, Uniqlo, and Forever 21. These value retailers are coming into the New York market and taking advantage of the trend toward less expensive, but fashion forward apparel.
Another observation of our Retail Advisory Group is that in high traffic areas, such as Fifth Avenue and Times Square, tenants are expecting to make money in relatively expensive space and are not simply using these locations solely to advertise or to burnish their image.
New York will continue to be a desirable destination for retail tenants, large and small, boutique or big box. The great recession has created hardship and casualties. However, for stores that have survived the recession, New York offers the rare opportunity now to find space below what a tenant would have expected to pay or in a neighborhood that would have been outside their price range a few short years ago.