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Spring 2013 Retail Report
May 7, 2013
The Manhattan retail market continues to be one of the healthiest sectors in the real estate market in New York. Rents in the high profile corridors are high and rising due to strong demand from a broad range of both domestic and international retailers. Activity in the secondary corridors with more local tenancy is improving too as business confidence builds as a result of a consumer buoyed by an improving economic growth outlook and an improving job market. Booming tourism in the city has also played a major role in boosting asking rents. New York City attracted 52 million tourists last year according to NYC & Company, the most ever recorded.
The demand for space in New York City is robust, according to our Advisory Group, despite very high asking rents in some corridors. Luxury and fast fashion brands are both establishing and expanding their presence in the city. Tenants from Europe, Asia, and South America have been in competition for limited space in prime corridors. The benefits from heavy pedestrian foot traffic and brand association in these prime corridors is very important to these retailers as they can increase sales volumes as well as boost brand awareness and prestige.
As our Advisory Group noted in the Fall 2012 retail report, the unavailability of good quality space and increasing rents in prime corridors has led retailers to push the boundaries of the traditional and established high end retail areas. This phenomenon has continued in 2013. Asking rents in such corridors as Fifth Avenue south of 49th Street and Broadway in the Flatiron district, Bleecker Street between Seventh Avenue South and Hudson Street, and Broadway in SoHo have all had substantial asking price increases.
These corridors in midtown south and downtown have also benefitted from the tech sector expanding in the area. Office occupancy rates in midtown south have risen significantly in the past two years generating increased foot traffic in the respective retail corridors as a result. Furthermore, high end residential development in midtown south has created an increased demand for high quality shopping options. Some retailers looking to stay in certain traditional prestigious corridors have become very savvy in order to maintain their presence. Our Advisory Group has noticed this occurring on Madison Avenue between 57th and 72nd streets where a form of retail “musical chairs” has taken place. As these retailers gain experience and knowledge of the corridor they can better assess the specific type of space they need. This leads to many lease transactions occurring before the retail space comes to market. This active and efficient market is good for both the tenant and the property owner as the space does not go vacant and retailers do not lose the base they’ve established.
Our Advisory cited the examples of Berluti moving from the 70s to a larger space in the 60s, J. Mendel moving a few blocks north to a larger space, and Loro Piana expanding into adjacent space as examples of this on Madison.
The rapidly increasing asking rents in some corridors have not gone without consequence though as our Advisory Group has pointed out. They cite that although asking rents on Upper Fifth Avenue (between 50th and 59th) are still creeping higher, there have been no actual transactions closed in the corridor since the Fall 2012 to our report cutoff date of March 30th. Landlords are willing to wait for the right tenant though as the corridor offers some of the best space for a company looking to establish a large flagship store.
As always, it must be stated that the rents quoted in the report are asking rents. Also, please note that the physical components of a retail space factor greatly into its rental value. Attributes such as street/avenue frontage, ceiling height, and the presence of below and above grade space can affect value as much as locational factors. Consequently, in corridors with fewer availabilities, a high quality space coming to market can skew the average and median asking rents greatly. Accordingly, we have provided information about the rent range as well as asking rent information from six months and 12 months ago to provide a rich statistical context to evaluate the current market conditions. Lastly, as we have learned in the decade or more that we have been preparing this report, retail brokers active in the market are an invaluable source of information and trends that cannot be fully captured by our report. We attempt to provide an overview of the market at a particular point in time that is based on the available listings of our Advisory Group and the REBNY Retail Committee members which include all the major retail brokers and owners in Manhattan.