Net effective retail rents in Manhattan have fallen 20 to 30 percent from their 2014 peak, according to a report from brokerage CBRE.
The estimate accounts for concessions, which have been on the rise across Manhattan as landlords try to keep face rents up. “Investors have expectations of returns, so they need to keep rents at a certain level so they match the pro-forma,” CBRE researcher Nicole LaRusso told the Commercial Observer. “And then they negotiate all these concessions on the side. So asking rent might not be down, but net effective rents are.”
The report is another sign that the retail market is in trouble, even in New York. Between 2010 and 2014, retail rents rose 90 percent while retail sales only grew 32 percent, according to CBRE. Since then, a dip in tourism, the struggles of major department stores and the continued rise of online retail only made matters worse. In many cases investors who spent a fortune on a property betting they could achieve high asking rents are now faced with vacancy.
“It’s one thing to open up a store on Third Avenue [or] on Columbus Avenue, [but] it’s a very different thing to open up a store on Fifth Avenue or Prince Street that could be a $5 [million] or $8 [million] or $10 million rent for a year,” Cushman & Wakefield’s Alan Schmerzler told the Observer. “For that rent, I could open several stores in malls around the country. Until rents come down to the point where I can defend that decision.” [CO] — Konrad Putzier
(To view a ranking of the most expensive retail leases in NYC, click here)