Starbucks Corporation’s announcement that it is shuttering 11 stores in the five boroughs by mid-2009 may have left java junkies in something of a caffeine coma. But the question on brokers’ lips now is, what exactly will happen to all that prime retail square footage when the coffee giant takes its Frappuccino makers and white-and-green coffee cups and moves out?
While New York’s closures represent only a tiny fraction of the 600 stores the overstretched Seattle company is putting on the block (there will still be more than 220 stores left in the city), the departure of some outposts could make room for new coffee competitors and other retailers looking to get a toehold in the Manhattan market.
Six of the soon-to-be-closed Starbucks are in Midtown, where, according to a recent report from REBNY, average retail rents are $145 per square foot. But that varies by submarket: Those average rents can soar as high as $1,958 on a stretch of Fifth Avenue from 49th to 59th streets.
The closures slated for Manhattan are at: 340 Madison Avenue, 400 Madison Avenue, 1600 Broadway, 1675 Broadway, 565 Fifth Avenue, and on the third floor of Macy’s in Herald Square — each within a few blocks of another Starbucks franchise. The Macy’s Starbucks, for example, is one of two in the flagship store. The company is also closing one branch on Staten Island, one in Brooklyn and three in Queens.
Some industry experts see the scaleback as a sign of the slowing market, but most said the retail hole would be filled quickly. For more on what the Starbucks void will mean for rents and competition, we turn to our panel:
Andrew Mandell partner, RIPCO Real Estate
What does the departure of Starbucks mean for the retail spots the company is vacating? Are they going to be hard or easy to fill?
I think that Midtown in general is still fairly leased up and remains strong, and I think that smaller stores seem to be easier to rent these days than larger ones. There are just more tenants in that size category. My sense of this is that they’ll probably be leased up quickly.
Will the fact that Starbucks will no longer be as aggressive about looking for sites here have any impact on retail rents?
[Having] a company such as Starbucks sort of sidelined for the moment just decreased the numbers of tenants that are out there. Starbucks is a great amenity for office buildings; office tenants tend to like them as well as landlords, especially in Class A properties. Landlords are very conscious that their retail tenants are desirable — in that respect, it may take a little longer to lease these spaces.
Will Starbucks as a symbol of gentrification and rising property values become a thing of the past?
I think you’re going to see a drop-off in that. I’m aware that the company has said that it will grow into newly developed areas, but I think what you’re going to find is that those areas that pose the most risk are going to be the ones that they tend to shy away from, and areas that have been on their radar, which they may not have been able to penetrate, will be the more likely candidates … if in fact they are still growing.
Richard Skulnik broker, RIPCO Real Estate
Will the fact that the company will no longer be looking for new locations open up more retail spots for its competitors? If so, what kinds of retailers will benefit most from the fact that they will probably no longer have to compete with Starbucks?
If they’re not going to expand, there will be opportunities for other retailers, but I don’t think it’s going to cause panic and drive down the rent.
Bill Melville senior managing director, Lansco Corp.
What kinds of retailers do you expect to benefit from Starbucks’s scaleback?
A number of the [coffee] nationals … may be looking at this and saying ‘This is our chance.’ You’ve got Peet’s Coffee, Tea Leaf & Coffee Bean. Then you’ve got local people like Oren’s and Pret a Manger.
Will Starbucks as a symbol of gentrification and rising property values become a thing of the past?
A Starbucks franchise has always delivered the message that ‘yes, this is a valid neighborhood,’ and I think that will continue. When an area is [not doing as well], Starbucks … has to question whether they should be there.
Neil Dolgin executive vice president, Kalmon Dolgin Affiliates
What do you take away from the combination of closures in Midtown, on Staten Island, in Queens and in Bay Ridge?
They’re downsizing. Closing 12 stores in the metro area is not going to affect anybody. The stores aren’t that big that it’s going to hurt the local economy.
Will the fact that Starbucks will no longer be looking for more sites have any impact on retail rents? Did they help drive up retail rents in the city?
No, not at all. They don’t control the retail operations here.