The Real Deal New York

Commercial market report

From Manhattan’s retail correction to the city’s never-ending tech draw, a look at the biggest trends
By Chava Gourarie | August 01, 2018 12:00PM

Puma inked a 24,000 square foot lease at SL Green’s 609 Fifth Avenue

Retail landlords adjust to new norm

Retail rents across Manhattan continued to fall in 2018’s second quarter, but leasing activity is picking up as landlords come to terms with the market, according to a report from Cushman & Wakefield. “We’ve seen more velocity,” said Steve Soutendijk, a retail broker at the firm. “There’s definitely been a shift in landlords’ expectations.” Along Madison Avenue, where rents fell by 9.2 percent year over year, 16 new stores opened in the first half of the year. And two new deals, Puma’s lease at 609 Fifth Avenue and Forever 21’s lease at 435 Seventh Avenue, debunk the notion that the era of the flagship is over, Soutendijk argued. Those deals are “reflective of the fact that tenants still need flagship stores to showcase their brand,” he said. Flatiron was the strongest market in the second quarter, with asking rents remaining flat at $421 per square foot and the availability rate dropping by 3 percentage points to 12.7 percent. Soho, on the other hand, continued to struggle. Rents there fell by 12.6 percent to $418, second only to Upper Fifth Avenue, while availability inched up to 24.5 percent.

Midtown South office rents exceed Midtown for first time

Midtown South’s office market had a particularly strong second quarter and surpassed Midtown in asking rents for the first time ever, according to CBRE. Asking rents in Midtown South climbed 9 percent year over year to $78.36 per square foot, compared with Midtown’s $77.13. The submarket saw 1.9 million square feet leased in the second quarter, a 42 percent increase from the five-year quarterly average, according to CBRE. The activity was driven by two deals upwards of 300,000 square feet, including Facebook’s expansion at 770 Broadway and the Discovery Channel’s deal at 230 Park Avenue South. “The Midtown South market has been the driving force behind the current expansion cycle due to the strength of the TAMI sector,” said Rich Persichetti, research director at Cushman & Wakefield. Tech and media tenants have leased 1 million square feet in the submarket since the beginning of the year, more than the total for 2017, he noted.

NYC’s core has more vacant land than LA’s or Miami’s

New York City has 16.4 acres of undeveloped land in its central business district — more than other coastal cities including Miami, Los Angeles and Washington, D.C., according to an analysis by Commercial Café that ranked 25 cities across the country. That revelation comes despite the massive development boom in the five boroughs that has outpaced every other metropolitan area on the list. Between 2013 and 2017, New York added 30 million square feet of housing and commercial space, more than triple the total for the next city, Dallas, which saw 8.5 million square feet of new properties. According to the report, 51 percent of New Yorkers thought housing was the No. 1 priority, compared with 72 percent of respondents nationally. Other respondents in New York cited parks, medical facilities and homeless shelters as priorities.

Bay Area tech firms continue to pour into New York

Where do tech firms go when they outgrow the Bay Area? A CBRE report showed that in the last five years, through the first quarter of 2018, Bay Area tech firms have leased 18 million square feet across the country, with Seattle, New York City and Southern California topping the list. The firms have leased 3.4 million square feet in New York, just behind 3.5 million in Seattle and significantly ahead of SoCal, with 2.2 million square feet leased. A large chunk of that is due to the footprints of Silicon Valley giants such as Facebook, which expanded its lease at 770 Broadway to 880,000 square feet in May, and Google, which has plans to occupy at least 1.5 million square feet in four Manhattan buildings: Chelsea Market and 111 Eighth Avenue, which the tech giant owns, as well as 85 10th Avenue and an upcoming Pier 57 project.