As tourists continued to flock to Gotham in record numbers, New York City retail saw a banner 2012: Nordstrom announced it would take 285,000 square feet of space at 225 West 57th Street, at the base of Extell’s soon-to-rise residential development, and one of the retail condos at the base of 666 Fifth Avenue sold to Vornado for $707 million (note: correction appended).
In the third quarter of last year alone, retail rents shot up 30 percent in the Herald Square area and 23 percent both on Upper Fifth Avenue and in Times Square, according to data from the CBRE Group. And the Lower Fifth Avenue market — the stretch from 42nd to 48th streets that has recently seen higher-end retailers replace souvenir shops — continued to burgeon, adding clothing designers Joe Fresh, Ted Baker and Aritzia to its list of increasingly up-market tenants.
This month, The Real Deal looked at Manhattan’s largest new retail leases by square footage below 96th Street on major corridors. Retailer H&M snagged two of New York City’s biggest leases — one at 589 Fifth Avenue at 48th Street, the other at the Durst Organization’s long-vacant 4 Times Square retail space.
Grocery stores inked large leases, too, with Fairway securing a nearly 40,000-square-foot Kips Bay space, and Whole Foods signing a lease for a blockfront on the Upper East Side.
4 Union Square South
Retailer: Burlington Coat Factory
Amount of space: 92,602 square feet
In April, the 92,602-square-foot Union Square South space vacated by bankrupt retailer Filene’s Basement rented to Burlington Coat Factory, a middle-market winter-wear purveyor that’s ramping up its presence in the city. According to figures from both Cushman & Wakefield and CBRE, the deal was the biggest new retail lease of 2012.
Negotiations between Burlington and landlord Vornado were challenging and complex due to Filene’s bankruptcy, according to Clifford Simon of CNS Real Estate, who represented the prospective tenant. Simon said before Burlington and Vornado were able to strike a direct deal, Filene’s tried to sell the lease.
“We had to patiently wait for [the lease] to not get purchased, and then once it was the right time, we struck,” Simon said. “We were the right user for the space. … We were big enough and it was a hard place to split because of the structural nature of the space. It was a fast deal.”
The rent for the 15-year lease was not available.
Sherri White represented Vornado in-house. Burlington Coat Factory signed another large deal later in the year on 125th Street in Harlem. The Union Square location, Burlington’s sixth in New York City, opened in September.
589 Fifth Avenue
Amount of space: 56,700 square feet
The world’s largest H&M will move to 589 Fifth Avenue at 48th Street, the firm announced in September. The 56,700-square-foot deal was the second-largest new Manhattan retail lease inked in 2012. The store will span six floors at the glass-front building owned by Western Management.
The space was marketed for about a year, though at first Western was only planning to lease the first three floors as retail, according to Jedd Nero of CBRE, who represented the landlord and represented H&M in a previous lease at 42nd Street and Fifth Avenue.
Cushman’s Robert Gibson and Thomas Citron represented H&M in the deal, but declined to comment for this article.
Simon said Lower Fifth’s surge is partially due to H&M’s lease, which is helping the area compete with Upper Fifth — the area between 49th and 58th streets that boasts some of the highest rents in the world.
“That line is quickly vanishing,” he said of the Fifth Avenue barrier. Indeed, as retailers figure out that even if they pay a premium to be on Upper Fifth, they still may end up “next to the Gap,” their interest in Lower Fifth increases, said Nero.
H&M had looked at a space on Upper Fifth owned by Vornado, Nero confirmed, but negotiations had dragged on, and “time came where they needed to make some decisions,” he said.
While the rent on the H&M deal was not disclosed, a third-quarter retail report from CBRE showed that Lower Fifth asking rents averaged $1,118 per square foot.
4 Times Square
Amount of space: 42,510 square feet
In 2010, when the sports bar ESPN Zone began shuttering sites around the country, this Durst Organization–owned space was left empty.
Durst began marketing the space anew at the International Council of Shopping Centers conference — the mega-retail gathering in Las Vegas — in May 2011. A deal in its final stages with clothing store Express fell through this past May. And it wasn’t until October that Durst was able to finalize a lease, although ESPN Zone reportedly paid a hefty termination fee that likely gave Durst some breathing room when it came to finding the right tenant.
H&M — the only retailer with two of the top five biggest Manhattan leases — ultimately stepped up. The clothing store took a 42,510-square-foot, three-level space. The lease also includes valuable Times Square signage — two at ground level and at least two on the roof, said Tom Bow, who represented Durst in-house for the transaction. (H&M has an option to take up to four rooftop signs, but the agreement had not been finalized when TRD went to press.)
The 20-year lease had an asking rent of $15 million annually, but the final taking rent was not disclosed. Gibson and Citron of Cushman also represented H&M in this lease.
The ground-floor signs had a combined asking price of $5.5 million to $6 million per year, Bow said, and the rooftop signs had a $1 million per annum ask per sign. In the end, it was worth it to hold out for the right tenant, said Bow, who noted that H&M ended up taking one more floor than Express would have.
“There are only a handful of [appropriate] users,” he said.
576 Second Avenue
Retailer: Fairway Market
Amount of space: 39,892 square feet
After months of speculation, the Fairway supermarket chain inked a lease for 39,892 square feet at 576 Second Avenue at 30th Street in June.
“People have been asking for years for us to come to Midtown,” Howie Glickberg, vice chairman of development for Fairway, said in a statement at the time.
Negotiations for the 15-year lease were not without tense moments, however, said RKF’s Gary Alterman, who represented Fairway in the transaction. The space was partially occupied by a Crunch gym, which had trouble relocating in time for Fairway to move in. Eventually, Alterman jumped in and helped Crunch negotiate for its new space on 34th Street, which he said is owned by Kamran Hakim. (Crunch did not have a broker.)
The deal came together fairly easily after Crunch got its new lease figured out, he said.
Unfortunately for the grocery store, the drama did not end there. While this location was not impacted nearly as badly as the chain’s Red Hook spot (which is still closed), the opening of the store was delayed by about a month by flooding and other issues related to Hurricane Sandy.
The store was slated to open by press time in late December, Alterman said.
Cushman’s David Green and Chris Schwart repped the landlord, Carlyle Construction, but declined to comment for this story.
1551 Third Avenue
Retailer: Whole Foods
Amount of space: 38,850 square feet
Fairway isn’t the only grocery chain coming to the East Side. In October, Whole Foods announced that it would open a 38,850-square-foot store on Third Avenue in early 2014.
Whole Foods will occupy an entire block front between 87th and 88th streets, on the basement, first and second levels, said Alterman, who represented the Milstein family, which owns the space. Previously the space had been occupied by a smattering of retailers, including a paint store and a deli, he said.
“They have been looking a very long time and never had the fortune to find a big enough space,” Alterman said of Whole Foods. While there are several smaller supermarkets in the area such as the Food Emporium and Grace’s, there is nothing as big as this space will be.
“Suddenly a neighborhood starved for food will have [lots] of [new] grocery stores,” he added, also factoring in a new Fairway in the area, which opened in July (the lease for that Fairway was signed prior to 2012).
Chase Welles and Jacqueline Klinger of SCG Retail represented the tenant. Rents in the long-term lease were not disclosed.