New York City has long been a town where a shopper can turn the corner from a bustling retail district, walk a block or two, and enter a retail ghost town.
Now, as the Great Recession sends vacancy rates in Brooklyn and Queens skyrocketing — toward 15 percent by year’s end, according to Marcus & Millichap estimates — this contrast between blocks chock-full of retail and blocks down on their luck is growing ever more marked.
Even within the overall depressed market, certain blocks and types of retailers are taking it on the chin.
Mom-and-pop stores in mixed-use buildings with retail on the ground floor and apartments above are suffering.
Some low-income areas in Brooklyn that headed into the recession on shaky footing are getting socked, too, with vacancies estimated at stunning levels of 25 to 40 percent by Marcus & Millichap, compared to 12 to 18 percent vacancy rates in 2008.
These areas include several retail corridors that reflect the dramatic contrast a few blocks can make. One of these hardhit stretches is on Pitkin Avenue between Rockaway Avenue and Mother Gaston Boulevard — but the same street is very busy west of Mother Gaston Boulevard, noted J.D. Parker, regional manager of Marcus & Millichap’s Brooklyn office. Likewise, Utica Avenue in Bedford-Stuyvesant has a busy retail corridor south of Eastern Parkway, but traffic drops off dramatically north of this thoroughfare.
“I’ve been working on [these] markets for seven years, and as long as I can remember, these areas have been extremely depressed, but I would see a deli change hands, or a nail salon change hands, or a barbershop,” said Parker. “Now I’m seeing them [close] and nothing really opening [instead].”
He continued: “I think it’s general stress in the retail market and people not wanting to take chances where they would have four or five years ago.”
Meanwhile, strip malls and retail centers with parking or ready access to mass transit are doing better, and logging higher occupancy rates than districts far from public transportation. Brooklyn’s Fulton Mall is benefiting from being well-served by buses and subways, and from its proximity to municipal buildings, including Brooklyn’s Supreme Court.
Yet further east on Fulton into Bedford-Stuyvesant, vacancies are spiking even higher than they had been in the past.
Even well-heeled districts right near major subway stops, such as Brooklyn Heights’ Montague Street, are logging vacancy increases and rent declines.
As The Real Deal has reported, in recent months several stores on Montague, including a Spicy Pickle franchise that only lasted a few months, have shuttered. Rents on Montague, which runs from Court Street to the Brooklyn Heights Promenade, have fallen to between $50 and $90 a foot (depending on whether the location is a corner piece or split-level), from a range of $90 to $150 a foot, according to Parker.
Such steep rent drops are becoming more common throughout Brooklyn and Queens, brokers said, as landlords adjust to the recession reality. These lower rents benefit the few tenants that are expanding and want space in prime districts rather than the second-tier areas that used to be their only affordable option.
Take 82nd Street between Roosevelt and 37th avenues in Jackson Heights. This budget retailer’s dream block has a subway entrance, constant crowds and national tenants including Children’s Place, T-Mobile and Chase.
Until this summer, it was out of reach for many tenants, who turned instead to the mom-and-pop retail boulevard of 37th Avenue, directly perpendicular to the north. Recession-era rents, however, and a handful of available spaces, are drawing tenants away from 37th Avenue to 82nd.
“A year ago, I wouldn’t have made this argument to them to go to 82nd Street…but there’s opportunity now at rents that haven’t been seen in a while,” said Dean Rosenzweig, vice president of retail services for the outer boroughs at CB Richard Ellis.
Retail in Brooklyn and Queens is also facing steep new competition from an unlikely quarter: Manhattan. Upstart retailers that would have once begun in a cheaper, hipster Brooklyn neighborhood such as Williamsburg are now finding entrepreneur-friendly rents in areas of Manhattan such as Nolita and the Lower East Side.
An apparel retailer represented by broker Faith Hope Consolo is choosing that route, opting to open on Elizabeth Street in Nolita, which has been slammed by a huge wave of vacancies in recent months.
“We had reverse migration in the last three to five years, with retailers going to the boroughs because it was less expensive than Manhattan…now the reverse is happening,” said Consolo, chairman of the retail leasing, marketing and sales division at Prudential Douglas Elliman. “It looked good to go across the bridge, but now it looks good to come back this way.”
With fewer tenants chasing lots of available space, it’s clear landlords are under pressure.
Brokers said those that have owned buildings for years will lower rents to attract new tenants and avoid the downward spiral long-term empty storefronts can touch off for a neighborhood.
Landlords who bought at the top of the market, however, may be saddled with such high-debt service costs that they cannot cut rents low enough to attract a tenant and still make their mortgage payments.
While brokers are far too optimistic a bunch to predict a wave of retailer defaults, they said banks are quietly moving to work out deals with distressed landlords for loan modifications or resales.