High-end airport retailers bring in big bucks for owners

Sep.September 01, 2013 07:00 AM
Click to enlarge. Gross sales and square footage from Airport Revenue News. Both are for 2012.

Click to enlarge. Gross sales and square footage from Airport Revenue News. Both are for 2012.

The increasingly high-end retail options — think Coach luggage and Juicy Couture tees — at the city’s three major airports have turned store spaces into something of a cash cow for owners and operators.

At John F. Kennedy International Airport’s Terminal 4, where Delta Airlines finished a 360,000-square-foot expansion in May, new retailers include men’s clothiers Thomas Pink and Michael Kors as well as handbag kingpin Coach, not to mention the trendy burger joint Shake Shack and barbecue pioneer Blue Smoke.

“The build-outs for the stores are at a higher level than [they have] been in the past,” said Edward Midgley, vice president for concession management at JKIAT, which manages Terminal 4. “And it’s primarily being driven by the branded store operators.”

It’s all aimed at getting a slice of an often-captive — and growing — consumer audience: airline travelers.

According to the Port Authority, which manages the airports, passenger volume grew an average of 3.3 percent to 109.4 million in 2012, nearly besting 2007’s pre-recession record of 110 million, and quadruple the 0.8 percent national jump.

Ellery Plowman, an airport-retail consultant and former leasing vice president at Westfield Concession Management, which operates retail in parts of Newark, said passenger volume could rise another 5 percent per year for the next few years.

The presence of these pricier stores has led to the greatest gross sales for retailers in New York airports since 2009.

For example, at JFK, which had the highest-grossing retail dollar volume of the three area airports, retail sales clocked in at $319.5 million in 2012, according to data from Airport Revenue News, a trade magazine that tracks statistics on airport retail. That’s a nearly 13 percent jump over the $282.8 million that the airport saw in 2009.

At LaGuardia Airport, meanwhile, gross sales were $111.9 million in 2012, up 10 percent from $101.7 million in 2009, and a remarkable 25 percent from 2010. And at Newark Liberty International Airport, gross sales were $195.2 million in 2012, up 4.3 percent from $187.1 million in 2009.

“If you were flying back in 2005, you probably did not come across too many designer handbags in airports,” said Laura Samuels, a spokesperson for the Hudson Group, which operates retail spaces at all three airports. “Now you can’t swing a dead cat without hitting Michael Kors, Coach, Juicy Couture, you name it.”

Much of this change is due to changes in air travelers. A wider cross-section of travelers, including Europeans hungry to take advantage of the stronger pound and euro, are flying, for business and personal reasons, spurring operators and retailers to provide a wider variety of shops.

“Fifteen to 18 years ago, the business traveler, 18 percent of them were women — now it’s 56 [percent],” Plowman said.

The latest improvements come as developer Joseph Sitt lobbies for his Global Gateway Alliance, a group he launched in January to improve logistics, such as arrival and departure times, at area airports.

Sitt did not respond to requests for comment, but his goal is reportedly to ease conditions for travelers to get into the city and shop, which, in turn, would benefit his retail investments.

A bigger footprint

When it comes to leasing out their space, airports don’t operate like other landlords.

Instead of setting rental prices by square foot, the entities that control airport retail — which include the Port Authority, the airlines and management firms like Hudson that act on behalf of owners — set a base rent monthly and then increase it once retailers hit specified sales figures. Sources declined to give those base rents.

As a result of that system, the recent upswing in gross sales translates into higher rents, making the retail more lucrative for the airlines, the Port Authority and the management companies, sources said. One analyst told The Real Deal that a general rule of thumb for airport-retail pricing is to add $10 to the average per-square-foot asking rent of ground-floor retail in a particular city.

Recent numbers provided by MarketPlace Development, which operates LaGuardia’s Central Terminal (Terminal B) on behalf of the Port Authority, show how sales have been rising per square foot. Gross sales per square foot in the terminal, which includes the Metropolitan Museum of Art Store and chef Todd English’s Figs Restaurant, averaged about $1,250 in 2009 and 2010. In 2012, the average was $1,435.

Moreover, in 2012, about 27 percent of Terminal B tenants averaged more than $5,000 a square foot in sales. MarketPlace noted that those figures are “considerably higher than malls.”

And the amount of this retail is growing. LaGuardia had 91,842 square feet at the end of last year, up from 77,542 the year before. The airport’s Terminals C and D, which are dominated by Delta, have undergone renovations, including a 600-foot connector opened in December 2012, with retail kiosks.

JFK, meanwhile, saw its retail space jump to 221,865 square feet in 2012 from 219,938 four years before. And, Newark’s space increased to 158,313 square feet from 146,383.

In addition, the Port Authority is evaluating bids to redevelop and operate LaGuardia’s Terminal B. Nearly a dozen bids were submitted to handle the approximately $2.4 billion project, which is expected to grow the terminal from 835,000 square feet to 1.3 million. The authority selected four finalists in July, including high-profile companies like Tishman Construction, which is partnered with Morgan Stanley, Wells Fargo and Citigroup, among others. The authority has not set a deadline for the redevelopment, but expects it to be finished by 2021.

Recession-proof

New airport retail space is often snapped up as soon as it becomes available.

“It’s very, very competitive — much, much more than the street,” said Plowman.

As a result of this competition, airport retail in New York has weathered the market better than other city shopping districts.

The city’s overall retail vacancy spiked to more than 12 percent in 2009, according to Douglas Elliman. The current rate stands at around 5 percent, according to Integra Realty Resources. Meanwhile, vacancy rates at the airports have run close to or at zero for the last four years, operators and owners said.

In LaGuardia’s Terminal B, for instance, the only two open spaces have leases signed, according to Lillian Tan, general manager of MarketPlace. Over the past few years, Tan said, “we have had almost zero vacancy.”

And even with several five- and seven-year leases expiring this year, she added, “we don’t anticipate a problem filling the space.”


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