With record numbers of residents and tourists filling the streets, New York City retail rents cracked what might be called the “crystal ceiling” in 2013, when asking rents for the city’s most sought after strip, Upper Fifth Avenue, topped a median price of $3,000 per square foot.
New York remained the second priciest market in the world for retail rents last year, trailing only Hong Kong, where data from CBRE Group show rents topping over $4,000 per square foot in the poshest areas.
The growing value of New York retail can be seen in the Carlyle Group’s high-profile sale in June of 650 Madison Avenue to Crown Acquisitions and Highgate Holdings for $1.3 billion, or a record per-square-foot price of $2,166, according to CBRE. The deal hinged mostly on the prime retail frontage along Madison Avenue, between 59th and 60th streets — not the tower full of prestigious office space looming above it, executives at Crown told The Real Deal at the time.
“We think the retail [alone] will be valued at $1 billion,” within five years, said Haim Chera, a principal with Crown.
Manhattan retail rents continued to surge last year, as low crime drew more tourists, redevelopment boosted neighborhoods and a slew of major global brands sought to hang their shingles on Fifth and Madison avenues.
With upwards of 54 million visitors spending nearly $40 billion in the city last year, rents on Fifth between 49th and 60th streets shot up 33.5 percent, to a median ask of $2,760 per square foot in the April-to-June period, from $2,067 in 2012’s second quarter, according to the most recent data available from Cushman & Wakefield. By August, the median had breached the $3,000-a-square-foot marker on Fifth, according to reports. On Madison, asking prices shot to a median $1,351 per square foot from $1,098 last year.
While many factors drove rents, certain types of tenants were clear stars in 2013’s retail landscape.
International clothing brands like H&M, Prada and Hermès joined domestic clothiers like Ralph Lauren and Urban Outfitters as some of the biggest consumers of Manhattan space. Discount gyms also saw a boost in activity, with Blink Fitness and Planet Fitness taking large spaces, while stalwart full-service gyms like Equinox were also active. And grocery stores like Fairway and Whole Foods helped fill out the top spots for the year’s big retail leases.
“The retail market is exploding in New York, with so many retailers from all over the world looking for space,” said Faith Hope Consolo, chairman of Douglas Elliman’s retail group. “Retailers are coming from nearly every continent.”
While Manhattan rents are traditionally highest on Fifth and Madison, Times Square emerged as a competitor. Times Square will be next to breach the $3,000-per-square-foot average mark, said Jeffrey Roseman, a founding partner of Newmark Grubb Knight Frank’s retail division, who predicted that benchmark will be surpassed this year. Indeed, rents in the submarket spiked 17.3 percent, to a median ask of $2,170 per square foot in the second quarter, from $1,850 last year, Cushman said.
This month, TRD looked at the biggest Manhattan retail leases — at 125th Street or below — of 2013. While none of 2013’s leases matched Nordstrom’s announcement in 2012 that it would lease 285,000 square feet in Midtown, this past year saw two retailers ink deals for their largest New York City stores to date, and four deals over 50,000 square feet — up from two in 2012.
The largest retail deal of the year was not at any of the conspicuous Fifth Avenue or Madison Avenue spots. It was H&M’s 62,923-square foot lease at Herald Center, the humble shopping mall at 34th Street and Sixth Avenue.
While she declined to comment on the lease details, CBRE’s Susan Kurland, who represented landlord JEMB Realty, said the biggest obstacle to getting the deal done was the fact that some potential tenants had a psychological barrier about the location.
“The most important piece of the transaction,” she said, was “getting the message out to the market about the transformation of that street.” With Macy’s nearby flagship undergoing a renovation, retail along 34th Street is set to improve dramatically, she said.
The new store will be H&M’s largest in the city. Construction is underway, and the store will open in the fall. JEMB will also renovate the center’s facade before the retailer arrives. “It’s going to look like a brand-new building,” Kurland said.
The second-largest deal of the year was furniture purveyor Room & Board’s lease for 60,919 square feet at 249 West 17th Street in Chelsea. The deal was signed in October, and Room & Board will open in the summer.
“Literally, they walked into the space and said, ‘We want this deal,’ ” said Newmark’s Roseman, who represented landlord Savanna. “There was none of the usual grandstanding.” Roseman declined to disclose the taking rent, but the asking price was $125 per square foot on the ground floor, and $70 per square foot on the second and third floors.
Ranking third on the list of 2013’s largest deals was Urban Outfitters’ 56,730-square-foot lease at Malkin Holdings’ 1333 Broadway. The building at 36th Street is blocks from the massive H&M. The 15-year lease had a blended rent of $6.5 million per year, according to published reports.
“This store will be a huge catalyst for this retail and office neighborhood extending north of Herald Square,” said Anthony Malkin, president of Malkin Holdings, when the lease was announced in June. Urban Outfitters took possession of the space in September. The outpost will reportedly focus more on “lifestyle” products than the retailer’s other locations, which mainly sell clothing.
Wade McDevitt and Keith Fencl of the McDevitt Company represented Urban Outfitters, but did not respond to calls. Andrew Goldberg and Matt Chmielecki of CBRE represented Malkin, but declined to comment.
In mid-December, Barneys New York announced it would open a Downtown flagship on Seventh Avenue, stretching from 16th to 17th streets, where it had previously had a massive outpost. It relinquished the space in 1997 when it sought bankruptcy protection. Roseman represented the tenant, who reportedly took 57,000 square feet at the building, owned by retail developer and owner Equity One. Equity One did not respond to a request for comment.
The fifth-largest lease signed last year was by the ever-popular grocer Fairway, which leased 52,252 square feet for 20 years at Jack Resnick and Sons’ 255 Greenwich Street in October.
Newmark’s Jason Pruger and Alan Cooperman of Welco represented Fairway in the complex deal, which involved buying out a number of office and retail tenants for the two-story space, Pruger said. The market is slated to open by the third quarter, he said.
Fairway’s lease created a ripple effect, Pruger said, with chains like Juice Press signing leases for space nearby.
Asking rents were $250 per square foot for Fairway’s 11,358 square feet on the ground level and $100 per square foot for the 40,894 square feet above that, Pruger said.
Calls to Jack Resnick and Sons were not returned.
Fairway also leased 48,875 square feet at the massive Hudson Yards project (see “Hudson Yards retail gets underway”).
Meanwhile, gyms took spaces all over the city, with five of the top 20 leases belonging to fitness facilities.
Discount gyms made their mark for the first time, as New Yorkers looked to save money on membership fees and supplement their workouts with trendy classes at places like CrossFit and SoulCycle, said Roseman, who represented Blink Fitness in its lease for 27,832 square feet at 31 Penn Plaza, which clocked in at No. 11 in 2013.
Blink, which offers membership for as little as $20 per month, is planning to open between five and 10 Manhattan locations this year.
“The trend in the fitness world has been to a less expensive model,” Roseman said, so that gym-goers can “still go to your SoulCycle or spin class and it won’t break the bank.”
Nevertheless, Blink’s parent company, Equinox, a subsidiary of the Related Companies, signed leases for two large spaces, including 35,000 square feet at 2 World Financial Center — the eighth largest retail lease inked in 2013 — and a Bryant Park deal at the new retail project called “the Cubes.”
Patrick Smith of SRS Real Estate Partners represented landlord Equity Office at the Cubes at 120 West 42nd Street. He said the deal, which had an asking rent of $2 million per year, was just one of many slated for the Cubes, a glassy 75,000-square-foot retail project at the base of 1095 Sixth Avenue, an office tower.
“Bryant Park has never really had a retail infrastructure,” said Smith. “Equinox was the first transaction to really get the ball rolling; we have activity on every single space.” (Whole Foods also reportedly signed a lease at the Cubes as well, while Blink is said to be in talks for 20,000 square feet there. Smith declined to comment on either deal.)
Other notable deals in the top 20 were the 45,814-square-foot lease by Ralph Lauren at 711 Fifth Avenue, where according to published reports, the space will serve as a flagship for the company’s Polo brand; a 25,000-square-foot renewal at 575 Broadway by Prada, and a 21,738-square-foot re-up by Hermès at 691 Madison. Representatives on both sides either declined to comment or did not return calls.
Meanwhile, CVS took 25,000 square feet at 3 Columbus Circle, while grocer Jubilee Marketplace inked a deal for 25,000 square feet at 5 East 17th Street, in the Union Square area. And chain restaurant Señor Frogs signed on for 20,977 square feet at SJP Properties’ 11 Times Square in February, according to published reports.
Brokers are optimistic about 2014.
“We’re seeing huge flagships opening around Manhattan, long before Nordstrom’s planned 2018 opening,” said Consolo, referring to the department store’s seven stories being built at the base of Extell Development’s 225 West 57th Street. That opening, she said, will spur even more interest in prime Manhattan retail.
Expect more “Eataly-type concepts,” as well as a British Invasion — Primark, the United Kingdom’s version of Target, is looking to open and Topshop is looking to expand, said Roseman.
He also predicted continued expansion from Inditex, the parent company of Zara and Massimo Dutti, who “have obviously been extremely aggressive.”