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Spring 2011 Retail Report
May 20, 2011
New York City’s market for retail store space continues to improve according to our Retail Advisory Group. Steady growth in tourism as a result of depreciating value of the dollar has been a boon to New York City’s major retail corridors, as we noted in our last report. Visitors from around the world have been a vital aspect of our improving economy. This external demand has compensated for the City’s modest job growth. New York City employment gains have generally been in line with ten year average monthly gains according the New York State Department of Labor, though retail gains have outpaced the other sectors. Furthermore, significant national job growth was reported in April by the Bureau of Labor Statistics, raising hopes for improved summer tourism to New York City by domestic travelers.
Lower Manhattan, according to our Retail Advisory Group, has attracted significant interest and activity since the Fall 2010 Rebny Retail Report. The average ground floor asking rent for the Broadway Corridor in the Financial District was $184 per square foot this spring, up 23 percent from the fall 2010 and 36 percent from spring 2010. The downtown retail area, defined in the report as below 14th Street, also showed increases this spring. The average rent per square foot for all space of $103 was 4 percent greater than in the fall. This is supported by figures from a recent report by the Alliance for Downtown.
In the report, the business improvement district stated that number of visitors to Lower Manhattan has grown from 7 million in 2008 to 9 million in 2010. The visible progress of office construction at the World Trade Center site and the announced opening of the 9/11 memorial later this year has been attracting national and international attention for Lower Manhattan as well. Taking advantage of these improved market conditions, a number of stores have signed leases, such as Duane Reade, My Suit (a custom men’s tailor) and the Dark Horse (a full service restaurant).
A lack of availability within the prime spaces of the traditional high end retail corridors, like Madison Ave. and Upper Fifth Ave (49th-59th), has led to rents leveling off in these areas. There was a surge in asking rents last fall as such prime spaces became available, but now rents reflect a concentration of available space away from the most prestigious blocks. Asking rents in the Madison Ave. corridor decreased to $919 per square foot of ground space, 12 percent off from last fall and 4 percent off from spring 2010. The leasing of high end space on Upper 5th Ave led to the average asking rent of availabilities settling to $2,250, a decline from last fall and spring 2010 by 5 percent and 2 percent respectively.
Our Retail Advisory Group reported that retail activity is spreading to the periphery of the traditional retail corridors too. For instance, the Third Avenue corridor, especially the area north of East 69th Street, which typically has lower asking prices than the southern end of the corridor, has been attracting more tenant interest recently.
In time, this tenant interest will push up asking prices, bringing them more in line with the average asking rents for stores to the south. In preparing to release our report, our Advisory Group always reminds us to clearly acknowledge that the rents reported here are asking rents (not the final negotiated price per square foot or the taking rent) and the unique aspects of the retail space market. The asking rent does not factor in a free rent period or a financial allowance for making interior improvements in the space. The dollar value of these lease provisions can vary depending on the relative strength or weakness a particular market and the availability of comparable space in the same corridor.
Similarly, a tenant with strong financials, especially over an extended period of time, provides an owner with greater assurance that the rent will be paid on time. A tenant in this position can generally negotiate a lower rent than a tenant that cannot offer the owner the same level of financial security.
There are exceptions. As we mentioned, many retailers have unique space needs. For a retailer who wants a store on Fifth Avenue in the mid 50s an available space on Sixth Avenue is no substitute, not even at a lower price. Likewise, for a retailer that wants to be on Seventh Avenue in Times Square, a store a short block away on Eighth Avenue is not an option. A few years ago the competition in the retail banking industry led to very specific space requirements for branch locations. Banks wanted to be on a corner and could not be persuaded to lease a similar mid-block space at a discount or with generous concessions. With strong competition for a specific location on a block, it was not unusual for the taking rent in these cases to be higher than the asking rent as well as the normal range of rents for the corridor.
As you review our report keep in mind that we are using asking rents for available space and that in the prime retail corridors there may be a limited number of stores available on which we can report. We have tried to provide a broad range of price information to give you a comprehensive account of pricing in the market.