Bank branches have cornered the market on Manhattan’s high-profile retail corners in recent years, at times displacing even well-known favorites like the Second Avenue Deli.
But as the banking industry’s heady expansion binge ends, the Chases, Citibanks and Wachovias that seem to dot every city block could give way to fashion retailers, home stores and service chains — merchants that, until now, have been stymied by the stranglehold banks have held over much of the city’s prime retail real estate.
At the height of the bank expansion 18 months ago, a corner spot could bring landlords twice the normal asking rent.
On Third Avenue in the 60s, where rents went for $200 to $250 a square foot, landlords were striking deals for $300 to $350 a square foot for bank tenants, brokers said. Other retailers simply couldn’t compete.
But those days are over.
Brokers now say the shakeout from consolidation in the banking sector and the financial industry’s current woes could spell branch closings throughout the city in the next few years.
In part, market saturation has halted branch expansion, with big names such as Chase and Citibank “now pulling back,” said Robin Abrams, executive vice president of the Lansco Corp.
The past few years, banks had been in brand-building mode and were pushing rents to steep levels, sometimes way beyond asking prices, as they competed against one another in certain neighborhoods.
Landlords had “played one bank against another to get top dollar,” Abrams noted. “It created intense competition.”
But now, those financial firms “got the critical mass” they craved in the city, said Bill Melville, senior managing director of Lansco. “It’s the law of diminishing returns.”
Complicating matters, the subprime mortgage mess has destabilized the banking sector. And the unraveling at Bear Stearns underscores an industry in crisis mode. As a result, banks are taking a cautious stance.
“There are serious issues right now,” said Andrew Mandell, a broker with Ripco Real Estate who counts banks among his clients. He noted that the banks have halted expansion. “It’s fair to say they all have: Commerce, Chase, Citibank, Wachovia.”
Banks such as Chase and Washington Mutual said they could not pinpoint the number of locations they would open in New York City this year or next year, while HSBC declined comment.
But Citibank suggested a slowdown from 2007.
“We’re going to focus on performance and productivity of our existing branch network,” said Janis Tarter, a spokesperson. “While we will continue to open branches, they will perhaps not be to the level of last year.”
Abrams said the change means that desirable locations with high foot traffic that “were hard to come by” are now “more readily available at more realistic rents.”
Indeed, coveted corner spots that would have been scooped up by banks 18 months ago are sitting in neighborhoods such as Soho, Midtown and the Upper East Side.
International retailers such as Zara, Reiss and Uniqlo that are on the hunt for high-profile locations could benefit from the banks’ retreat, Abrams said.
Soho, for example, is ripe for new, non-bank retail,
brokers said. A 2,600-square-foot former shoe store on the southwest corner of Broome and Broadway is now up for grabs, noted Melville.
“That location instantly would have become a Chase,” he said.
The southern end of Soho is becoming a hotbed of fashion and home stores, with new retail stores like Madewell (J. Crew’s spin-off) and home stores CB2 (Crate & Barrel’s sub-brand) and Muji adding a fresh buzz to the area.
Fashion tenants or wireless carriers could also turn up in locations that would have been reserved for bank branches in new residential developments with retail bases on the Upper East Side.
Brokers noted that new luxury condos like the Brompton (86th Street and Third Avenue) and the Lucida (86th Street and Lexington) are ripe for new retail blood.
Midtown, meanwhile, could see more tenants like
Staples and Kinko’s that cater to the office market,
One branch that is already on the chopping block is at Madison Avenue and 39th Street. Chase, which purchased the Bank of New York in 2006, is selling one of its acquisition’s sites because it already owns one of its own across the street.
In Harlem, a Washington Mutual branch has been vacant for a few months, said Jeff Schettino, vice president of commercial leasing at Giscombe Realty.
The space on 125th Street and Lenox Avenue
will likely go to “some kind of large retailer,” Schettino said.
As the subprime mortgage crisis plays out, the
question becomes, “Are [more] banks going to consolidate? Is there going to be a shakeout?” Melville said. “The big fish usually eat the smaller fish.”
For now, “you’ll continue to see cases where leases are coming up, and you’ll see shuffling going on,” Mandell said.
“There’s a lot of overlap in portfolio,” he said, noting Capital One’s acquisition of North Fork and Chase’s purchase of Bank of New York will likely
result in those banks unloading more spots.
Indeed, the closure of Chase’s “redundant stores” is only 50 percent complete, said Michael Fusco, a Chase spokesperson.
At Washington Mutual, “as far as I know, we don’t have plans to close any Manhattan stores at this time,” said Lisa Friedman, a company spokesperson.
But brokers said notable shifts would start to
unfold this year.
In the next six to 12 months, “there will be
a fairly significant change in the retail world,”