If Manhattan retail brokerage is your line of work, you’ve started the holiday season with much to make you thankful.
“Business, knock on wood, could not be better,” said Karen Bellantoni, senior managing director for Robert K. Futterman, a commercial brokerage.
Propelled by banks looking for corner spots, retail rents have pushed skyward, a trend confirmed by a report issued last month by the Real Estate Board of New York (see story below). Though the bank boom has been a boon, trends toward consolidation of retail banks could slow the pace. Demand for retail space will surely decline if, after a merger, branches of formal rivals are putting up the same new signs across the street from each other.
Brokers aren’t calling this a doomsday scenario, but they are bracing themselves for a shift, particularly because there’s not much available space remaining for new branches.
“Where can they go? Because you get the feeling they are everywhere at this point,” said Cory Zelnik, president of Winick Realty, who has worked extensively with banks. Zelnik witnessed the effects of one significant consolidation when Manufacturers Hanover became Chemical Bank, and then Chase, in the early and mid-1990s.
While account holders changed checkbooks, the leasing market was affected, he said. A similar occurrence today could prompt a spate of subleasing, or banks could make big payments to get out of leasing agreements altogether.
Gary Trock, first vice president of retail services at CB Richard Ellis, said banks have already begun to scale back, which will result in smaller expansion and more reasonable rents. The banks may go from seeking 5,000 square feet to 3,000, but they’ll remain in the market, he said.
“I think things will subside a little,” he said. “You’re not going to get the banks overpaying for space these days.”
Still, brokers say the retail market will be buffeted by other factors. National chains are eager to get Manhattan spaces and the residential boom has created new “downtowns” with thousands of people looking for services.
The sweep of rising rents extends far across the city. Madison and Fifth avenues continue to get premium prices, sometimes above $1,000 a square foot, but other districts are also seeing rising prices. Brokers say there’s been a spillover effect on certain shopping districts, such as Fifth Avenue in the 40s, or Eighth Avenue in Midtown, where one broker said rents have doubled. Interest in Broadway, for example, has pushed up prices on Amsterdam and Columbus avenues.
“No market is going down,” said Trock.
These prices are making it hard for small, independent operators. “New business for retail they have a very tough time,” said Richard Du, managing director of Dumann Realty. “Because the market is too strong. The landlords really want strong customers. They are really afraid that businesses might fail.”
Development of new retail space is under way, but it’s not enough to meet demand, another factor that brokers say will keep the market stable. Manhattan retail space is usually ground floors, not multi-level malls or big chunks of space.
There are exceptions, however. Among the bigger projects, Zelnik’s firm is the broker for 20 Exchange Place, which has 133,000 square feet of multi-floor retail space Downtown. Ground Zero could add hundreds of thousands of square feet of retail space, although it’s not clear when.
And Extell Development plans to build 120,000 square feet of retail space at 86th and Lexington, along with 250,000 square feet of residential, according to Trock, who is the broker for the site. A Tishman Speyer Properties-led partnership purchased The New York Times building on West 43rd Street last year, and as part of a renovation, will convert the building’s loading docks into retail space.
Zelnik said that the retail market tends to move in trends instead of cycles. If banks are the trend now, drug stores were before that (Zelnik has done more than 200 leases for Duane Reade during nine years, he said.)
“A fair amount of us are interested in seeing what the next trend will be,” he said.
Store rents up sharply this autumn
By Tom Acitelli
Retail rents on major Manhattan corridors increased as much as 32 percent compared to last year, according to an autumn report from the Real Estate Board of New York released last month.
Not surprisingly, the borough’s tonier shopping districts Tribeca, Soho, Fifth Avenue in the 50s saw double-digit rent increases, but so did areas generally off the serious shopaholic’s radar, like parts of the Upper East Side and the Financial District.
The Third Avenue corridor between 60th and 72nd streets saw the sharpest increases from 2004, with asking rents for ground-floor space surging by 32 percent to $248 a square foot. The best-known retail corridor in New York, Fifth Avenue between 49th and 59th streets, had retail rents that were up 15 percent to $817 a square foot. The perennially trendy Soho corridor on Broadway between Houston and Broome streets jumped 27 percent to $228 a foot, and, on Hudson Street between Chambers and Canal streets in Tribeca, rents increased 21 percent to $68 per foot since last year.
And, in a sign that the coming retail development near Ground Zero may find a lucrative home, the Broadway corridor between Battery Park and Chambers Street saw rent increases of 12 percent to $125 a foot.
Overall, REBNY reported that average asking rent for all retail space in Manhattan increased 5 percent to $102 a foot this fall compared to the same period a year ago.