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Spring 2009 Retail Report
May 15, 2009
Manhattan average asking rents for allavailable space declined 11 percent from the Fall 2008 to $115. Each of the borough’s six geographic areas showed a decline in the average asking rent for all available space, ranging from 6 percent in Midtown to 22 percent on the West Side compared to six months earlier. Double digit declines in the average asking rent for all available space were reported on the East Side (12 percent), Midtown South (14 percent), Downtown and Upper Manhattan (13 percent).
These declines in the average asking rent for all space are from market highs in the fall 2008. In most cases, the average rents for Manhattan and the borough’s six geographic areas are comparable to asking rents from a year ago. Since September 2008, the turmoil in the financial markets has reverberated through the real estate industry and the retail market.
Despite this uncertainty, our Advisory Group reports that leasing activity is occurring throughout Manhattan. More interestingly, new retail tenants are looking at store space in New York for the first time. No doubt declining prices are attracting tenants for whom the city is becoming more affordable.
The average asking rent for ground floor space in many of the major retail corridors highlighted in the report likewise showed declines compared to Fall 2008. Madison Avenue declined 14 percent, Broadway on the Upper West Side declined 5 percent and Fifth Avenue in the 50s fell 3 percent from Fall 2008.
In a few corridors, such as Fifth Avenue in the Flatiron District and Broadway in SoHo, the average asking rent for ground floor space showed a modest gain. Our Advisory Group noted that in this economy owners are uncertain about what is an appropriate asking rent. Hence, they do not modify the asking rent which could have been set as much as a year ago. Instead, they would offer a longer free rent period and a more generous build out allowance. These economic incentives vary from owner to owner.
A few years ago, in our meeting to review our report, our Advisory Group began to express concern about the steep rise in asking rents. They believed that asking rent increases in the major retail corridors in Manhattan were outpacing overall economic growth and questioned the sustainability of these asking rent increases. Accordingly, they see the recent decline in asking rents as an anticipated market correction in a market that was experiencing unsustainable rent growth.
In our tumultuous economy it is crucial to examine all the asking rent information—average, median and range of ground floor space— in assessing the market conditions of an individual major retail corridor and evaluating asking rents for individual stores.
An emerging issue identified by our Advisory Group is the rise in sublet space. In earlier reports, this sublet space was virtually indistinguishable from space marketed directly by the landlord and was included in our reports. Going forward, our Advisory Group will be examining the asking rents for sublet space listings. Those listings that reflect market conditions (comparable rent with a term of 7 years or more) in a particular location will be included. In situations where there are sublet listings with shorter lease terms we will attempt to determine if these sub-leases are likely to be converted to long-term leases with the participation of the building owner. Those listings, however, in which the asking price reflects economic distress of the tenant and significantly lower than other available space in the market will be omitted.
The goal of our report is to provide complete, comprehensive information—the major neighborhoods and prime corridors in Manhattan—on the retail market. With the invaluable assistance of our Advisory Group, we have attempted to alert the readers of our report to factors that are not captured by the rent data. This information is critical to understanding the market.
We hope in these challenging times you find our report informative and useful.