Looks like a few trendy designers are reading up. Some big names in apparel — P. Diddy’s Sean John, H & M and now BCBG Max Azria — have moved to an unlikely locale: Fifth Avenue in the low 40s, in sight of the New York Public Library.
Once a hodgepodge of low-end shops, delis and lunch counters catering to office workers and suburban commuters around Grand Central Terminal, the area is perhaps becoming an extension of the famed retail corridor a bit farther uptown. The change happening around the watchful gazes of the library lions indicates the area will attract fashion elites as well as literary elites.
Swedish cheap chic retailer H & M closed on a deal for 25,000 square feet of retail space at 505 Fifth Avenue in July 2006, paying $350 a square foot, according to a report in the New York Post. That’s drawn other fashion brands, as well as developers, to the neighborhood.
BCBG in February signed a 10-year lease for 14,398 square feet at 461 Fifth Avenue, across the street from the library headquarters.
Steven Durels, executive vice president at SL Green, said the move “underscores the growing appeal of Fifth Avenue below 42nd Street.” He also said the urban label Sean John, as well as H & M, have made the 40s a clothiers’ hot spot.
Developer Joseph Moinian bought several buildings in the area. Moinian recently purchased 417 Fifth Avenue at 38th Street for $250 million. The building, built in 1912, is 11 stories high and has 392,000 square feet. Anchor tenants include Atari and Marvel Entertainment. The deal included some 80,000 square feet of air rights.
According to a number of brokers and experts, the 40s around Fifth Avenue is an undervalued area.
Though retail rents all over Manhattan are rising, the range of average rent estimates vary widely here. One broker said this area currently commands an average of $225 to $300 per square foot, while another broker figured rents on Fifth Avenue could fetch up to $600 per square foot. Still, when compared with Fifth Avenue rents in the 50s, the area offers major bargains. One broker said rents for ground-floor locations to the north can command up to $1,500 per square foot.
Ray Cirz, CEO and managing director of the Manhattan office of Integra Realty Resources, said the changes are long overdue. The 1992 reopening of Bryant Park was a turning point, but the shift in prices has been one of the last shifts in the district’s fortunes.
“It used to be dangerous, drug-infested,” he said. Grand Central’s rehabilitation in late ’90s and the construction of the Bear Stearns Building at 383 Madison in 1999 are among other milestones in the neighborhood’s improvement.
He said the area’s future as a shopping hub remains uncertain, though “these stores will certainly increase foot traffic and put upward pressure on rent.”
There are currently three large multi-level spaces available in the area — 500 Fifth at the northwest corner of 42nd Street, 521 Fifth at the southeast corner of 43rd and 530 Fifth at the southwest corner of 44th — and the next tenants will influence the flavor of the library district’s retail focus.
Retailers would benefit from the high concentration of office workers in the area. The 40s have an estimated 5,000 office workers for every 1 million square feet of office space.
In a survey last year of the most-trafficked retail intersections by brokerage Newmark Knight Frank, 42nd and Fifth Avenue recorded 6,600 pedestrians per hour at peak times.
The weekends are still a sharp contrast, as the Grand Central-Bryant Park corridor is nearly empty then. But there are some 14,500 households with an average annual income of $110,000 within a half-mile radius of 505 Fifth, according to Cirz.
Karen Bellantoni, senior vice president at Robert K. Futterman & Associates, thinks high-fashion brands may turn away from considering the area as more mainstream retailers move in.
“Many new leases have been signed [there] in the last two years,” she explained. “It’s my belief that many more blocks of space will turn over to more big-box retailers and moderate fashion tenants.”
Sean John was one of the first stores to bring the area more upscale.
Steven Greenberg, president of the Greenberg Group, brokered the deal that brought Sean John to its sole Manhattan retail location three years ago. He said the low rent was a big factor in the hip-hop label’s decision to set up shop at 475 Fifth Avenue, across from the library, and it’s still a draw for other fashion brands.
He didn’t reveal the rent per square foot, but said the company brokered a deal that was “significantly under today’s market for getting there early.”
When Sean John moved in, rents ranged from $150 to $200 a square foot.
Greenberg said that rents in the low 40s are steadily rising, and keep pace with the increases in the 50s. “Rents in the 50s along Fifth were 20 to 25 percent lower five years ago, and rents in the 40s along Fifth are probably escalating at the same pace, and therefore still staying substantially lower than in the 50s,” he said.
“Historically, what’s happened on key fashion streets, like Rodeo Drive in L.A. or Newbury Street in Boston, is that once the street fills up and rents [become prohibitive], the street will expand and move either east and west or north and south,” Greenberg added. “In this case we thought Fifth would move south; there’s plenty of room, and lots of space.” Greenberg said office building owners in the area will ultimately shape its future.
“The problem I see is that a lot of the office building owners in the 40s are less motivated to hold out for a nicer-looking tenant [on the ground floor],” he said, noting that landlords are most interested in closing on the first tenant who makes an offer, regardless of what kind of vendor they are.
Also, when timing isn’t a factor, Greenberg said many fashion clients may want to pay less per square foot than other businesses. Nonetheless, he thinks landlords who wait, or take slightly less rent on the first floor, could make out better in the long run.
While the retail market has been strong, Greenberg said many New York landlords who manage office building are too focused on everything above the ground floor because of the hot market for office space.