Retail rents in Manhattan rose again this fall, according to a market report released last month by the Real Estate Board of New York.
Brokers are debating REBNY’s findings, trying to figure out how much room for further growth in rent levels remains.
The average asking rent for Manhattan retail space climbed by 4 percent from a year ago, to $106 per square foot, according to the trade group’s twice-yearly report.
Asking rents for ground floor space on major Manhattan corridors increased by 12.5 percent year-over-year, reaching $225 a square foot, the report said.
Some real estate professionals think the retail market has peaked.
“The rents have hit a plateau,” said Richard Hodos, principal and founder of Madison HGCD.
Not so, said John Brod, a principal at PBS Realty Advisors.
“We always think rates have peaked until we see the next increases. Notwithstanding, I think the answer is probably no, [they haven’t peaked], but the pace of the increases will likely not be as fast,” Brod said. “You only need to look at London, Tokyo, Paris and Hong Kong to realize that there’s still room for future increases.”
Cory Zelnik, CEO of Zelnik & Company and a REBNY board member, also said he does not expect rents will fall off much over the next year.
The retail corridor where rents rose most sharply was West 42nd Street, where ground-floor retail rents surged 50 percent from a year ago, to a median asking price of $300 per square foot.
Of REBNY’S six market areas, Midtown South between 15th and 34th streets saw the sharpest increase, with asking rents for ground-floor space climbing 15.4 percent, also to an average of $300 a square foot.
Tony Fifth Avenue in Midtown had the highest average asking rent at $1,035 for ground-floor space, a 27 percent boost from fall 2005.
The disparity between last year’s rents and this year’s rents can be partially attributed to an artificial market created by bank branches that paid aggressive rents as they sought to capture market share.
When other retailers could not afford the new rents, they moved to the sidelines, increasing the number of vacancies.
“When the demand dried up, the landlords were of the opinion that that was setting the market,” said Alan Victor, an executive vice president at the Lansco Corporation and an adviser for the REBNY retail report. But, he said, not all retailers could pay those prices.
A look at East 86th Street shows some of the dynamics that factor into the current market.
Anticipating further rent increases, Sprint Nextel recently renewed its lease at 169 East 86th Street before the 2007 expiration, said Fred Posniak, senior vice president of W & M Properties, the building landlord.
The telephone and wireless services company signed a lease for $400 a foot, about a 50 percent increase from the rent the company is currently paying. It’s a record rent for East 86th Street, according to market veterans.
Some real estate brokers think high-end projects on the street will keep rents from dropping.
At 86th and Lexington, Barnes & Noble and clothing retailer H & M recently signed leases for a total of 86,000 square feet at a new apartment and retail project by Extell Development. The Related Companies is putting up a condo a block east, at 86th Street and Third Avenue, which will include about 25,000 feet of retail space.
“You have new projects going up on 86th Street that will command very substantial rents,” said Bruce Spiegel, senior managing director of commercial leasing at Rose Associates.
Zelnik said demand would remain steady over time. “People will continue to come to New York,” he said. “They will come to New York and shop, and that will allow retailers to do well and will allow landlords to charge rents that retailers will be able to afford.”
Upper East Side retail rents drop
Retail rents are climbing everywhere in Manhattan except the tony East Side, according to a retail report issued last month by the Real Estate Board of New York.
The average asking rent for space on the East Side — from 60th to 96th streets and Fifth Avenue to the East River — decreased to $161 per square foot, down 13 percent from $186 per square foot at the same point last year.
Meanwhile, the West Side, Midtown, Midtown South, Downtown and Upper Manhattan all saw rent price increases.
Major retail corridors on the East Side saw a precipitous drop to $300 per square foot from $650 per square foot a year ago, the report showed.
But that figure may be misleading.
The REBNY biannual report, which is derived from information from members, only considers two corridors for its East Side data — Third Avenue from 60th to 72nd streets and Madison Avenue from 57th to 72nd streets.
The REBNY report said ground-floor space along the Third Avenue strip saw a $7 increase to $255 this year. The Madison Avenue portion rose by $86 to $909.
Michael Slattery, head of research for REBNY, said that declining rents on the East Side can be attributed to the reduced number of stores with rents of $400 a square foot or more and an increase in places with rents of $50 a square foot or less.
“It may not make sense to combine numbers for the East Side because it’s distorting the market,” Slattery added.
Richard Hodos, principal and founder of Madison HGCD said REBNY would be better off breaking down the East Side into smaller submarkets. “Then you’d have similar apples to apples comps,” he said. Fred Posniak, senior vice president of W & M Properties and a member of the advisory group for the report, echoed Hodos’ comments. “The numbers are not reflective of the overall East Side market,” Posniak said. “The Madison Avenue retailers are a different world.”
Still, more space was available on Third Avenue than in 2005, Slattery acknowledged. In November, a search of a real estate database showed a lot of availability on Third Avenue between 64th and 74th streets, including the spaces once occupied by Arden B., Eddie Bauer, Innovation Luggage, Club Monaco, Bebe, T-Mobile and Cingular.