As rents decrease and availabilities increase on Madison Avenue, some retailers are taking advantage of the situation by moving to larger spaces, while others have become victims of the recession by moving off the avenue or closing.
“The luxury end of retailing has not been too wonderful as of late,” said Alan Victor, executive vice president at Lansco. “Tenants that came in and are paying big rents for their space are feeling the effects of the economy.”
Victor said a Lansco broker recently represented the luxury linens brand E. Braun & Co., which moved from Madison Avenue to Park Avenue because the rent was significantly cheaper. And Lalique, a jeweler, is moving to a smaller store on Madison Avenue
Faith Hope Consolo, chairman of the retail leasing and sales division at Prudential Douglas Elliman, said more than ever before, the avenue is seeing a diverse group of retailers become interested in opening stores, and specifically more interest from accessories retailers, a change from the jewelers that were mostly opening stores last year.
“This is the right time for accessories; they are very recession proof,” Consolo said. “Someone may not buy a new suit but will buy a new handbag or shoes.”
According to Cushman & Wakefield, the average asking rent on Madison Avenue, between 57th and 72nd streets, was $947 per square foot in the first quarter, the first time in two years the average rent has fallen below $1,000 a foot. The first quarter rent is down 10 percent from the fourth quarter of 2008, and down 16 percent from the same time last year.
“[Landlords] don’t like to change until they have to change,” said Luigi Rosabianca, founder and principal of real estate law firm Rosabianca & Associates. “And right now they are trying to hold on to whatever hope they have of these higher rents.”
The availability rate was up slightly in the first quarter to 12.97 percent from 12.43 percent in the fourth quarter of 2008. The availability rate has remained in the 12 percent range for the past three quarters, according to Cara Greenberg, a spokesperson for Cushman & Wakefield, who added that Madison Avenue had the highest availability rate for the past few quarters, but the lower portion of Fifth Avenue recently surpassed it.
A recent walk down Madison Avenue, between 59th and 86th streets, revealed that there are 35 stores in transition, including stores that are shuttered, new ones preparing to open and those that are just under renovation.
“There was a lull for a number of months but now [activity is] starting again,” Lansco’s Victor said, adding that some retailers are shopping around for space to take advantage of the increased inventory and decreased prices.
While some retailers are looking for an escape route, several retailers already established on Madison Avenue are playing musical chairs and moving to new spaces on the avenue.
“There’s a lot of change on Madison,” said Elliman’s Consolo. “Not only are new retailers signing leases on the avenue but there are also new retailers expanding and relocating within the corridor.”
Among the movers are jewelers David Yurman and Graff, and apparel brand Krizia who have all moved to larger spaces on the avenue. And Hermes is opening a men’s store across the street from its current location at 691 Madison Avenue at 62nd Street.
There are also some newcomers to the avenue: designer Jil Sander is opening at 818 Madison Avenue and Nanette Lepore at 958 Madison Avenue, along with Citibank on Madison between 79th and 80th streets.
But even if the luxury retailers sitting tight on Madison Avenue are suffering, Rosabianca the lawyer said we may not know it because the brands could be staying on Madison despite financial troubles just because the street name is a known shopping destination for high-end fashion.
“Madison Avenue is prime real estate,” Rosabianca said. “Most stores are in the loss column, but need to be there for PR, for image purposes, not so much for bottom line. So if stores are vacant, retailers and businesses are making a simple cost benefit analysis and realizing it’s just not worth it.”
Victor said the falling rents are actually necessary for retailers’ survival.
“I view this as a correction that’s going on. Madison Avenue has gotten out of hand with $1,400 to $1,500 per foot rents,” Victor said. “Ultimately what you will see is a healthier market where you’re going to attract more retailers who will make money on these locations, afford to pay these rents and make a profit.”