Upscale retail goes underground

Gum, batteries, a magazine — these are items you would have expected to find for sale under Manhattan’s crowded city streets a few years ago. Now, the rushed consumer is drawn below ground by organic strawberries, iPods and 400-thread-count satin sheets stocked tantalizingly on basement shelves.

As retail rents on the ground floors of buildings continue to increase, many upscale stores, such as electronics retailer Apple and Whole Foods, have dug out space below Manhattan sidewalks. At the same time, retail space in subway stations is increasing as face-lifts and new construction at the World Trade Center and Fulton Street station allow for massive underground concourses.

After all, space below ground offers significantly lower rents than at street level, pointed out Pat Breslin, president of GVA Williams’ retail group.

He said space runs from about $30 to $80 a square foot below street level, significantly less than the average of $300 to $400 a square foot above ground in Manhattan.

“A retailer will ideally prefer ground-floor space because of its presence, but in Manhattan rents have gone up so much that it’s more economical to take belowground space,” said Eric Gelber, senior vice president at CB Richard Ellis. “I don’t know that retailers start out seeking basement level, but if they want to be here in Manhattan, in many instances, it’s the only way they can afford it.”

Over the last year, prices for prime street-level retail space have shot upward. The median price per square foot of retail space climbed 12.5 percent, according to the fall 2006 Real Estate Board of New York Retail Report, the most recent report available. The median ground-floor asking rent was up 26 percent on Madison Avenue to $1,000 per square foot. On Fifth Avenue in the Flatiron District, median prices climbed 28 percent to $263 per square foot.

“Retail rents have skyrocketed,” said Stacey Kelz, vice president at Mogull Realty. “If a store wants to be in the right location and can’t afford the rent, then the best alternative is to take a belowground space — especially for larger stores.”

While underground shopping has been around at least since the 1930s, when Rockefeller Center opened with more than 200,000 square feet of retail space below ground, consumers have grown more receptive to browsing basement shelves for luxury items over the last few years. Most new buildings make good use of their lower levels: The Time Warner Center on Columbus Circle houses a 59,000-square-foot Whole Foods supermarket in its basement; the Grand Tier luxury rental building on Broadway and 64th Street boasts a 53,000-square-foot Bed Bath & Beyond below ground; and the World Trade Center’s new underground concourse will have several hundred thousand square feet of retail space, according to the Port Authority of New York and New Jersey.

For higher-end stores, the lack of window-shopping doesn’t seem to hurt business. The Apple Store on Fifth Avenue, located entirely underground in the retail plaza of the General Motors Building, welcomed its one millionth visitor in September 2006 — less than four months after opening, according to Apple spokeswoman Amy Barney.

Less glamorously, stores in subway, bus and train stations cater to commuters looking for a quick meal or a place to run errands on their way to work. Indeed, underground retail in places like Penn Station, the Port Authority Bus Terminal and Grand Central consists largely of newsstands, fast food outlets and shoe repair stores.

“We do find the greatest success with captive audience locations such as train stations and malls,” said Jennifer McLaughlin, director of corporate communications for Focus Brands, which owns Carvel and Cinnabon, both of which have franchises in Penn Station. “People tend to associate our brand with these locations, so we seek them out.”

The number of commuters passing by stores in stations has its advantages. On a weekday, about 600,000 commuters pass through Penn Station, according to the Port Authority.

“Our store is successful because of the volume of people riding the LIRR each day,” said Ray Piergiorgi, COO of Perfumania, a discount designer fragrance chain with two locations in Penn Station.

For retailers, subway space is generally cheaper than basement space connected to a building, but retail rents depend primarily on location, said MTA spokeswoman Mercedes Padilla. A newsstand in Times Square may pay an annual rent of $80,000, while a newsstand in an outer-borough station might run $30,000 a year.

“We see a lot of pharmacies underground — people run errands on their way to and from work, and find the retail in these transportation hubs convenient,” said Faith Hope Consolo, chairman of the retail leasing and sales division at Prudential Douglas Elliman. “Underground retail has always had a certain attraction for these types of retailers.”

The MTA controls all of the retail operations in the subway system, and it is actively creating even more retail space below ground.

The best way to lure shoppers below street level may be by improving the surroundings. The MTA’s newest project, the Fulton Street Transit complex, scheduled to open in 2009, will have a number of retail locations, both on the street and below ground. The total retail area will be around 24,000 square feet, and the stores will consist of the typical subway-type retail in the underground area, according to Padilla.