Manhattan’s Retail Report Committee members recently said the market is “in a healthy place.”
What does this mean?
In healthy retail corridors, demand is steady and quality spaces are getting multiple offers. The extraordinary lease terms of 2021 and 2022 are much less prevalent. Many tenants are back in the market but with revised business models that include a rightsized footprint and a focus on margins.
Several significant flagship leases and developments were announced recently, underscoring renewed confidence among luxury retailers in Manhattan’s status as a preferred location. The return of Century 21 to Lower Manhattan and Barnes & Noble to the Upper East Side (albeit with smaller footprints) was encouraging. Finally, other retailers like Abercrombie & Fitch and H&M added locations.
A year ago, as leasing intensified, committee members predicted that availability would be sharply reduced by this time. As anticipated, quality space options are scarce in many prime neighborhoods such as Broadway in SoHo and Madison Avenue.
Improving demand is in part due to rents that are still well below pre-pandemic peaks. Asking rent is at least 30% below its peak in 13 of the 17 corridors tracked. Compared to the Fall of 2022, rent increased slightly in 10 of the 17 corridors.
Retailers generally have multiple options to consider and rent is still well below peak – in turn, retailers can take their time and make sure that the numbers will work. Committee members also note that more retailers are returning to the market with a revised business model and a renewed footprint. In the food & beverage sector this includes continued growth in rapid pickup options.
More retailers and property owners are coming to terms with the new normal – tenants can no longer expect the extreme discounts, concessions and flexible lease structures of 12 to 18 months ago; more landlords are accepting that the rent levels of 2016 and 2017 are nowhere in sight. However, there is a bit of a tradeoff between lease terms that have become shorter, continued requests for lease flexibility by tenants and landlords who are being more diligent. In turn, leases still take a long time to complete.
Market conditions still lag in several key areas. The most office-dependent areas such as 3rd Avenue, Midtown East and Sixth Avenue. 125th Street in Harlem and some sections of the Upper East Side continue to see retail turnover. Hybrid workplace policies continue to negatively impact stores in core office districts, particularly on off-peak workdays such as Friday. A recent REBNY analysis of Placer.ai mobile device data found that while year-todate office workplace visitation rates are only 20% to 25% below their 2019 levels on midweekdays (Tuesday to Thursday), the rate is down by more than 50% on Fridays.
Finally, while food and beverage retailers are active in Times Square, the fashion and entertainment sector is still holding back. Similarly, Fifth Avenue gained some notable flagship commitments but still has several key vacancies.