The Real Deal New York

NYC’s retail therapy: Brokers weigh in as the holiday shopping season gets underway

Brokers say prime locations are thriving, secondary areas are hurting and the holiday shopping season is going to be crucial

October 31, 2011
By Melissa Dehncke-McGill

Steven Baker

New York is, of course, the shopping (and eating) capital of the country — if not the world. But what do the latest concerns about a double-dip recession mean for the countless stores, restaurants and shops packed into Manhattan?

In this month’s Q & A, The Real Deal talked to Manhattan retail brokers about how the retail market — which tanked in the wake of the 2008 financial meltdown — is holding up.

Brokers said they are seeing strong rents and activity in prime areas like Fifth Avenue, Time Square, Soho and the Upper West Side. But, they say, secondary and tertiary submarkets are hurting, with continuing declines in asking rents and increases in vacancy rates.

And many are anxiously waiting to see how this holiday season plays out for retailers, which could have major implications for expansion plans going forward. The expectation among most is that national holiday sales will be flat, but that New York will do a bit better.

But sources had mixed views on whether there will be more holiday pop-up shops this year than last. Some said the once-vacant retail space those pop-ups were housed in has been mostly snapped up as a result of a market that has seen overall improvement; others said with more retailers interested in testing the New York waters, they would hunt out any available space.

Meanwhile, brokers are also keeping an eye on several large, vacant sites, including the Durst Organization’s 4 Times Square (former home to the ESPN Zone); the stores once occupied by the now-bankrupt book giant Borders; and 3 Columbus Circle, to see how quickly they get taken and what kind of rents they yield.

For more on which retailers are aggressively seeking space in Manhattan, which ones are retreating, and how the city is going to handle the next wave of available retail space that’s about to hit, we turn to our panel of experts.

 

Steven Baker

president, Winick Realty Group

There are obviously concerns about this latest economic rough patch and the possibility of a double-dip recession. So how is Manhattan retail doing today compared to six months ago, a year ago and right after the Lehman Brothers collapse?

Despite the doom and gloom that’s in the news, we’re still seeing strong activity in retail submarkets such as upper and lower Fifth Avenue, Soho, Times Square and the Upper West Side. It’s the secondary and tertiary markets that are suffering a bit and [where] inventory is stagnating.

What are you seeing in terms of Manhattan retail rents? How much have they increased or declined in the last six months, one year and three years?

Asking-rent growth ranges anywhere from 7 percent to 36 percent. Some retail corridors are experiencing significant growth in asking rents year over year — such as Times Square and the West Village. Fifth Avenue between 42nd and 49th streets has seen an increase in asking rents of approximately 21 percent in the past six months to a year. And, on lower Broadway in the Financial District, asking rents have grown by approximately 36 percent over the same period. Conversely, 125th Street, river to river, has seen a decrease in asking rents of approximately 12 percent. Corridors in the Meatpacking District and on Third Avenue in the 60s have also experienced a decline in asking rents. [Again], secondary and tertiary neighborhoods are taking a hit. Second Avenue in particular has been taking a rather large hit as a result of the subway construction in the area.

We know that burger joints have been on the make for a while, but what other retailers are most active in Manhattan?

Quick-service food users still seem to be fairly aggressive. Chipotle has made a number of really good real estate decisions and a lot of similar users are trying to follow suit. For example, Pret A Manger and Le Pain Quotidien are continuing to open stores. Coffee and sandwich retailers also seem to be aggressive, with Potbelly [Sandwich Shop] and Coffee Bean & Tea Leaf being the latest chains trying to penetrate the NYC market.

What are the most worrying trends and the most positive trends you’re seeing today in the Manhattan retail world?

The unemployment rate of 9.1 percent, [stock] market volatility and the current state of the global economy are all worrying, but the growth in tourism has been a boon to many of New York City’s retail areas, and I believe that will continue.

The holiday season is right around the corner. What are you expecting in terms of holiday sales?

I believe that same-store sales, year over year, will be flat across the country. The Manhattan market will be higher, but not significantly so.

Which big retail spaces are you keeping an eye on right now in Manhattan for what they might say about the market?

It’s going to be interesting to see what retailer takes the Durst Organization’s 4 Times Square, which was formerly home to the ESPN Zone. It will also be interesting to see who takes SL Green/Moinian’s 3 Columbus Circle.

The Real Deal recently wrote about a number of sites, including the World Trade Center, the World Financial Center, the Port Authority and Hudson Yards, which are in the pipeline and could add more than 2.5 million square feet of retail space below 59th Street in the coming years. How do you think that’s going to impact the retail market?

While it is a lot of inventory to absorb, I don’t believe the World Trade Center will have a lot of challenges filling spots. We just came back from a presentation at Brookfield for the repositioning of the retail at the World Financial Center and I think it will take time, but their spaces will be absorbed due to the sheer population of office workers in the surrounding area. I’m most excited about the prospects of the Hudson Yards. I’ve done a number of deals in the neighborhood and believe that it’s one of the most underrated trade areas in NYC for retail.

 

Michael O’Neill

senior director of retail services, Cushman & Wakefield

How is overall Manhattan retail doing today compared to six months ago, a year ago and right after the Lehman Brothers collapse?

The concern about the current state of the global economy and the decline of consumer confidence has resulted in reevaluation and a wait-and-see approach by many retailers. This more cautious mindset is more prevalent than it was six months ago and even one year ago, when there was a greater sense of stability and confidence that we were in an improving economic climate. Despite the fact that there seems to be a more conservative approach by retailers, it is certainly a better environment than in the months following the Lehman Brothers collapse.

How much have Manhattan retail rents increased or decreased in the last six months to a year?

It varies market by market, but average asking rents have remained relatively stable in most markets during the last year, although we have seen notable increases over the last 12-month period in Soho, Times Square and the Upper West Side.

Which geographic areas have seen the biggest drop-offs in price and the biggest increases in vacancy rates?

The average asking rent on Madison Avenue at the end of the third quarter was $863 per square foot compared to $947 per square foot in the first quarter of 2009. With that said, the availability rate has remained relatively stable and there is a sense of renewed demand on Madison Avenue. We only statistically track the prime retail markets and I believe the most substantial decreases in rents and increases in availability rates have occurred in the more secondary markets.

We know that burger joints have been on the make for a while now, but what other retailers are most active in Manhattan?

There have been several established retailers introducing new concepts to the market. [For example], the Gap recently opened its Athleta concept, Brooks Brothers will be opening its university collection in the Flatiron District, and Nike will be opening its first running concept store in the Flatiron area as well.

What are the most worrying trends and the most positive trends you’re seeing today in the Manhattan retail world?

The reported plan of several retailers to shrink their footprint is worrisome. As a practical matter, though, I believe that will be implemented more in suburban environments than in urban markets like New York.

What do you expect in terms of pop-up stores in Manhattan for the holidays? Will there be more this year than last?

I think you will see a number of pop-up stores this holiday season. Any well-located property that is vacant is a potential opportunity for a company interested in testing the market. Companies like Under Armour and Toys “R” Us have typically attempted to secure temporary stores during the holiday season. In addition, Target opened a pop-up store to introduce [its new] Missoni line. Uniqlo also opened several pop-up stores throughout Manhattan to promote the opening of 666 Fifth Avenue.

 

Faith Hope Consolo

chairman, retail leasing and sales division, Prudential Douglas Elliman

How is overall Manhattan retail doing?

Rents are increasing slowly in some areas and quickly on the main boulevards. Madison and Fifth are close to pre-Lehman levels. Manhattan rents overall are still about 15 percent down from fall 2008, but it’s very neighborhood-specific.

What’s going on with Manhattan retail vacancy on the whole these days?

New York City’s vacancy is at 2.2 percent, compared with 7.1 percent nationally. That’s a healthy market. Compare that with other reports in 2009 that had vacancy in some areas at 15 percent.

Which areas have seen the biggest price drops and vacancy increases?

Harlem’s rebirth as a retail destination stalled out a bit during the downturn. It’s slowly coming back. Also, the Lower East Side, which had been seeing some high-end shops moving over from Soho, is reconfiguring to more neighborhood-oriented shops right now.

For a while, landlords were offering lots of incentives. Are you still seeing that?

Fewer incentives are being offered today — we’re certainly not seeing the free rents that were being offered a couple of years ago. Do retailers still want TI money? Yes. Are they getting it? To some degree, particularly in cases where landlords want to retain a good store.

Which retailers are most active today?

Major designers are expanding, including Zac Posen, Ralph Lauren and Polarn O. Pyret. Uniqlo is [also] opening and Buccellati is relocating. We’re also seeing lots of sports/outdoor shops, with REI and Eastern Mountain both taking major spaces.

What do you expect in terms of pop-up stores in Manhattan for the holidays?

We won’t see as many as in previous years, simply because we have fewer vacant spaces. … Some retailers, including Uniqlo and Joe Fresh, are popping up as they ready permanent stores. One interesting pop-up open now through the end of November is Sephora’s fragrance boutique, Sensorium, on West 14th Street.

Which big retail spaces are you keeping an eye on right now in Manhattan?

The former Borders spaces at Time Warner Center and Penn Plaza will be an interesting case study. The two locations are quite different and it will be fascinating to see what retailers take the space.

How do you think all of the retail space at the upcoming mega-projects will impact the market?

Each of these projects has a very definite target market, and there will be heavy competition between the pairs that are geographically close. I can certainly see a battle between the World Trade Center and World Financial Center. The Port Authority and Hudson Yards will compete less. The Port is already well established as a commuter base, and if Hudson Yards does get Nordstrom as an anchor, it will skew much differently.


Jeffrey Roseman

executive vice president, Newmark Knight Frank Retail

What’s going on with Manhattan retail and how does that compare to six months ago, a year ago and right after the Lehman collapse?

Believe it or not, compared to six months ago, Manhattan retail rents are increasing. … Apparel and food seem to be the most popular sectors. Obviously, right after Lehman Brothers collapsed the market stood still. But Manhattan retail rents, for the most part, are back to pre-2008 numbers.

Which areas of Manhattan retail are doing best and worst?

The areas seeing the most vibrancy include Soho, the Meatpacking District, Times Square, Columbus Circle, Fifth Avenue and 34th Street. Certain areas that had artificially risen due to specific sectors driving up the rents, like banks and drugstores, have corrected to the more appropriate rates. Examples of these areas include the East Village, Upper East Side, Upper West Side and Lower East Side.

We know that burger joints have been on the make, but what other retailers are most active in Manhattan today?

Quick-service food continues to be very active in the city with chains such as Panera Bread, Potbelly, Chipotle and Chop’t aggressively looking for space. International fashion retailers still are very bullish on Manhattan, including Uniqlo, Zara, Topshop and Desigual.

What are the most worrying and most positive trends you’re seeing in retail?

What worries me are certain areas like Fifth Avenue pricing themselves out of the market and retailers not being able to generate enough business to support rents. The positive trends include retailers’ acceptance of going multilevel to help offset the large rental numbers.

What are you expecting in terms of holiday sales and what kind of holiday season are Manhattan retailers preparing for?

Economic indicators are obviously very cautious for this holiday season. While I think retailers in most of the country will have flat to small gains in sales, I think Manhattan, because of the incredible tourism numbers we are seeing, should weather the season more comfortably. With that said, I think the moderately priced retailer and the über-luxury retailer will do the best, while the middle-of-the pack retailers might have a hard time.

Which big retail spaces are you keeping an eye on right now in Manhattan?

There are a few defining large retail spaces that will anchor different parts of town. The corner of 42nd Street and Sixth Avenue is the gateway between Bryant Park and Times Square, and the right retailer there will seamlessly connect both markets. Also, 3 Columbus Circle, which we are handling, sits directly adjacent to Time Warner Center.

How do you think all of the retail space at the upcoming mega-projects will impact the market?

While there are a lot of new large developments coming online in the future, the reality is they will all be coming online at widely differing times. Retail at the World Trade Center will obviously lease very quickly based on its history as one of the top shopping malls in the country. Hudson Yards will finally provide some of the department stores that have anxiously been trying to get into the city with a place to go. The World Financial Center and Port Authority will be smaller projects in scope, but nonetheless should have a bunch of retailers to choose from.

 

Stanley Lindenfeld

senior managing director, Grubb & Ellis

How much have retail prices increased since Lehman collapsed?

In the strongest retail corridors in Manhattan, asking rents are not only back to what they were before Lehman collapsed, but have increased up to 25 percent. This includes prime areas such as Times Square, Herald Square, 34th Street and Fifth Avenue. Upper Madison prices are starting to creep up again, but have not returned to what they were before the Lehman collapse.

What are the most worrying trends and the most positive trends you’re seeing today in the Manhattan retail world?

Retailers are expanding once again; however, both the pool of retailers and available spaces have shrunk. As retailers became more cautious and selective, the better spaces were quickly taken. That, in turn, made decisions harder for the retailers cautiously contemplating expansion and looking for prime space.

 

Lisa Rosenthal

director, retail services group, Lansco

How is Manhattan retail doing today given the overall economic climate?

We are seeing rents rise on prime locations as stores are being leased. Asking rents on Fifth Avenue are over $2,000 per square foot. After the Lehman collapse everyone was in shock. It took a while for the landlords to adjust to the reality that there were few tenants in the market then. The few tenants who were brave enough to sign leases in 2009, in retrospect, got great deals.

Will there be more pop-up stores this holiday season than in the past or less?

I think there will be less because more of the good space has been absorbed and is no longer available for pop-ups. There is also another trend that is happening with pop-ups: Businesses that are not even traditional retailers want to do pop-ups. I got a call today from a book publisher who wanted to do a pop-up.

Other than burger joints, which retailers are most active in Manhattan today?

It was cell stores, then it was banks and then it was coffee. It still is coffee, but now it seems everyone who calls me has a yogurt store concept. We are also seeing new retailers from many countries. They are everything from large, fast-fashion apparel, such as Joe Fresh from Canada, to a patisserie from France called Ladurée and a gelateria from Italy called Amarino.

What are the most worrying and the most positive trends you’re seeing today in the Manhattan retail world?

In my mind they’re both the same: It’s that the market is tightening, and as a broker who represents tenants, it’s harder to find great space.

Comments are closed.

MENU