Winter 2021 Brooklyn Retail Report

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Executive Summary

Market Commentary

On March 7, 2020, Governor Cuomo declared a State of Emergency due to COVID-19, placing restrictions on the operations of businesses across New York State. Businesses slowly gained confidence in early 2021 as social distancing measures remained effective and vaccination efforts started to move forward.

These restrictions continued to have a dramatic impact on Brooklyn’s diverse retail corridors, but as REBNY Retail Advisory Group members noted, the impact has been highly uneven. Restaurants and bars have been particularly hard hit, but they have also been remarkably resilient.

Retailers been very ingenious in adapting to changing rules and conditions. Many landlords have also shown flexibility – putting more generous concessions and tenant improvements on the table. Other owners are phasing in rents over multiple years.

Despite ongoing challenges, committee members noted modest improvements in leasing activity during the fourth quarter of 2020 and the first quarter of 2021. As conditions slowly improved, more retailers signed leases in Brooklyn. Some tenants remain reluctant to commit to long-term leases. Smaller medical offices and pop-ups have been more active – but tend to want shorter-term leases. In contrast, some more forward-looking tenants are pursuing longer-term options to lock in great locations at very favorable terms. Examples include quick-service restaurants, supermarkets, daycare centers/schools and even some gyms.

Small retailers and property owners face challenges in this environment. Landlords with larger and diversified portfolios can cross-subsidize concessions across their different assets. Finally, service-oriented retail corridors that are less dependent on traffic from tourism/sporting events as well as office workers have held up better.

By the Numbers

When COVID-19 descended on Brooklyn in early 2020, its retail sector was already roughly a year into a market correction. Rents peaked in late 2018 and were already falling over the course of 2019.

Rents dropped even more precipitously in the last six months. Among the 17 Brooklyn retail corridors, 12 posted year-on-year declines in average rent – with decreases of more than 15% in five corridors. The average rent is an all-time low in five corridors as well, according to REBNY’s historical data which started in 2015. Of note, committee members estimated that the gap between asking rent and taking rent has widened during the pandemic, reaching 15% to 20%.

Market Outlook

With vaccination efforts just starting to gain traction and ample availability in many retail corridors, landlords will remain incentivized to reach creative solutions to reaching agreements with tenants. The willingness of businesses to commit to longer-term leases will provide a good gauge of growing confidence among retail.