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New York

Retail sales plummet in Q1 but rents rise

Retail property sales historically (courtesy: Eastern Consolidated)
Retail property sales historically (courtesy: Eastern Consolidated)

With the threat of the fiscal cliff no longer spurring sellers to close deals, investment sales of retail assets in New York City plummeted in the first quarter of 2013, according to Eastern Consolidated’s biannual Retail Pulse report, provided exclusively to The Real Deal.

Seventeen such properties traded in the quarter, down 66 percent from 50 in the fourth quarter of 2012, the report shows. By dollar volume, the drop in deals is even more striking: Only $102 million in retail properties sold in the first quarter of 2013, compared to $2.5 billion the previous quarter. The average over the last three years was $300 million, according to the report.

At the same time, retail rents continue to rise throughout the city, with only Downtown lagging behind. Important leading indicators, such as hotel occupancy and retail job growth also project a promising 2013 for the retail sector, the report shows.

“Retail properties’ sales volume is really volatile,” Eastern’s chief economist, Barbara Byrne Denham, told TRD.

The sharply decreased volume was to be expected however, as sellers rushed to market in 2012 to avoid higher capital gains taxes. Owners now may be reluctant to sell “due to the challenge they face for redeploying capital in a high-priced market,” the report said.

“We will not see the same fourth quarter 2012 volume in the next quarter or two, [but] the statistics will soon start to reflect the high demand we are seeing in the market,” Eastern Consolidated CEO Peter Hauspurg said in a statement.

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While the last quarter of 2012 saw five retail sales over $200 million – including the St. Regis retail condominium on Fifth Avenue at 55th Street and the massive 666 Fifth Avenue sale  – the priciest exchange to date this year was the $25.5 million purchase of 350 West Broadway’s retail component by a AH 350 Retail Member LLC.

Still, retail rents edged up, driven mainly by tourism, the report said. The city has opened three new hotels this year, following the addition of 21 last year and 15 in 2011. Hotel occupancy in New York City was 77 percent last year – the highest in the nation. And retail jobs have grown as well, with 45,000 positions, half of those in Manhattan, added in New York City since 2009.

The Manhattan corridors that saw the steepest increase in Rents Were On Madison Avenue between 57th and 72nd streets on the Upper East Side and in Soho on Broadway between Broome and Houston streets.

The Soho strip is “just white hot,” Byrne Denham said.

Average asking rents there were $800 per square foot in the last quarter, up 33 percent from less than $600 in the same period last year. Average asking rents on Madison Avenue were a staggering $1500 per square foot, up about 50 percent year-over-year from just under $1,000 per square foot.

And with large retail complexes coming to market Downtown soon, even Manhattan’s most retail-starved region will likely see an influx of higher-end retailers. Both the World Trade Center and the Fulton Street Transit Center will likely draw national retailers, Byrne Denham said.