With parts of the city still damaged in the wake of Hurricane Sandy, it’s a little hard to get into the holiday spirit this year.
Still, real estate professionals said they expect a strong holiday-shopping season — bolstered by locals and tourists alike — to push Manhattan retail rents higher and shrink availability, at least in the city’s prime retail corridors. “I think all of us in retail have a lot of confidence coming into the holiday season,” said Joanne Podell, executive vice president in retail at Cushman & Wakefield.
That confidence is not unfounded.
New York City private-sector employment rose sharply in October, growing 2.9 percent, according to the New York State Department of Labor. Some sectors, like financial services, continue to struggle, but the overall data show a fast-growing economy. “We are looking at a diverse and dense customer base,” Podell said. “And they are out there shopping.”
In addition, early holiday returns look good. Black Friday receipts came in at a record $59.1 billion nationwide over the Thanksgiving weekend, according to a National Retail Federation poll. Specific data for Manhattan was not available, but national figures show an increased spending appetite, with more shoppers in stores and online than a year ago and a higher average bill per shopper.
So far this holiday season, Manhattan’s Fifth Avenue retail corridor has seen “a pretty stunning amount of traffic, and [shoppers] weren’t just buying for themselves,” said Amira Yunis, executive vice president at the CBRE Group.
Faith Hope Consolo, chairman of the retail group at Douglas Elliman, said she expects purveyors of gadgets and clothing accessories to fare well this holiday season, along with one-stop-shopping locations such as Macy’s.
Discounters hocking this year’s popular hot toys should also see high traffic. Brick-and-mortar electronics retailers, though, likely will continue to struggle as consumers step-up online purchases, brokers said. Except, of course, for Apple. “They are going to do fantastic with the new iPad mini,” Yunis said.
Most brokers said they don’t expect Superstorm Sandy to have a significant impact on the overall health of the retail sector this winter.
“Sandy won’t do too much [to retail] in Manhattan,” especially among tourists, Yunis said. “People still want to come to New York to see the beautiful displays.”
While shoppers who suffered property damage might cut back on holiday spending this year, they’ll still be in stores, Podell said.
“People are not going to not buy,” she said.
Some shoppers might feel “awkward” about making ostentatious purchases with so many communities nearby still struggling to recover, said Consolo. As a result, she said, jewelers may see a decline in business.
And individual areas and businesses could struggle, especially in neighborhoods that saw severe damage from Sandy.
“Damage could slow sales and leasing on the Lower East Side,” an area that had been “picking up momentum” before it was dealt a blow by the hurricane, Consolo said.
But Consolo does not expect retail in the Financial District — the Manhattan area hardest hit by the storm — to suffer too much, since availability there is already tight. “My problem Downtown is finding enough space available,” Consolo said. She expects that to change, of course, when large spaces open in the World Trade complex and nearby.
And some restaurants in affected areas are still reeling from lost business after the storm. “They can never make up the lunches and dinners they couldn’t serve,” Podell said.
Some stores Downtown remain shuttered and may never open again, but the vast majority are back in business, according to the Alliance for Downtown New York, a coalition that advocates for the neighborhood’s businesses and property owners.
Manhattan as a whole has seen a decline in retail rents over the past few months.
The average asking rent in the borough slipped to $110 per square foot, down 4 percent from the spring and 2 percent from the same time last year, according to data from the Real Estate Board of New York. That was the lowest average in the twice-yearly tally since the spring of 2007. The median asking price also slid to $77 per square foot, down 7 percent from a year ago.
Most of the major retail corridors tracked by leading brokerages and research firms showed strong growth in asking rents, though several locations slumped. Among the laggards were the Upper West Side and the Meatpacking District, both of which saw asking rents drop from the second quarter, according to CBRE’s market report for the July-to-September period.
But despite that slippage, most prime areas are going strong.
According to Cushman’s third-quarter Manhattan retail report, Fifth Avenue between 42nd and 49th streets has seen asking rents jump 63 percent from a year ago to $942 per square foot. The tonier area to the north, up to 57th Street, had flat average asking rents at $2,067 per square foot.
A block east, on Madison Avenue between 57th and 72nd streets, asking rents rose by 28 percent year on year to $1,106 per square foot, Cushman said. And availability in the area fell to 10.2 percent after third-quarter deals like Kate Spade’s lease for a flagship store at the old David Webb space at 789 Madison and Canali taking over the former Baccarat space at 625 Madison.
The Times Square submarket, defined as Broadway from 42nd to 47th streets, also saw higher rents. The area’s average asking rent in the third quarter was $2,013, more than double the year-ago tally, despite an increase of 60,000 square feet of available space, according to the Cushman report.
New York City tourism — the prime driver for retail sales in the city — has been on the upswing for some time now, and before Sandy, tourism was on pace through October to set a new annual record. Meanwhile, consumer confidence, seen as a predictor of spending, last month reached its highest level of the year, according to the Conference Board, a global business research organization.
Podell called tourism “paramount” to the city’s rising retail rents. “Some of the increase in asking rent is clearly a result of that increase,” she said.
Still, modest U.S. economic growth, although buoyed by an increase in personal consumption, gives Cushman’s chief economist, Ken McCarthy, some cause for concern.
He said U.S. economic conditions likely won’t improve meaningfully until late 2013, leaving consumers and businesses “risk averse” in the face of political and fiscal uncertainty.
Locally, the financial services sector, which has an outsize impact on New York’s economy, lost 10,000 mostly high-paying jobs last quarter, Cushman said. That’s bad for spending and income and could be a drag on the rate of economic expansion, McCarthy said.
None of that data sours the brokers. “People believe in this market,” Podell said.