1775 Broadway, where Kohl’s was reportedly looking to open its first Manhattan site (source: PropertyShark)This holiday shopping season, the biggest sale in Manhattan just might be for flagship space.
As 2009 draws to a close, the anemic pace of major retail leasing — the five major Manhattan retail submarkets tracked by Cushman & Wakefield scored just one deal over 10,000 square feet this year, compared to 11 across the same five submarkets in 2008 — has started picking up.
Following a deal by furniture retailer Raymour & Flanagan for 30,000 square feet in August, brokers say tenants are finally looking around, after almost zero activity in the first half of the year.
Bradley Mendelson, an executive director of Cushman & Wakefield, told The Real Deal he had a signed commitment last month from a tenant for 16,500 square feet of corner and second-floor space at 666 Fifth Avenue, perhaps the most prominent of a slew of major flagship vacancies across Manhattan.
Meanwhile, Disney was pressing hard to complete a deal in Times Square at 1540 Broadway or 1604 Broadway for at least 14,000 square feet to replace the flagship it will vacate at 711 Fifth Avenue early next year, according to reports.
In addition, according to Crain’s New York Business, the department store Kohl’s was looking for its first Manhattan site, a flagship location of around 80,000 square feet at 1775 Broadway, Joseph Moinian’s embattled building in Columbus Circle.
Thanks to the recession, any store that actually clinches a flagship deal these days is getting more for less. Depending on the retail corridor, rents are down 30 percent or more compared to last year, while concessions, including free rent time, are up.
Brokers said any large tenants interested in taking second or third floors to create big boxes have the extra leverage of two soft markets. With office rents down 22 percent, and retail rents down even further in some corridors, blended deals for big spaces are substantially discounted.
“Let’s say office space in the past was $50; now it’s $44, [but] there’s no lessor, nobody around even at $44,” said Joanne Podell, an executive vice president at Cushman & Wakefield. “At $50, it was unaffordable for retailers, [but] now there’s a discount and the landlord doesn’t have a tenant for $44, so now you can enter into this market as a retailer getting something more affordable.”
Brokers say they expect fashion retailers such as Topshop or Uniqlo (which are known as “vertically integrated” because they produce the goods they sell) to be best positioned for new flagship deals in this difficult retail climate. That’s because they typically have a higher margin than competitors that order merchandise from vendors.
Both fast-fashion chains are said to be actively hunting for additional large spaces further uptown from their Soho outposts.
Polo and Levi’s, two other vertically integrated retailers, are said be hunting for space in Manhattan, while a source said American Apparel is looking to graduate to a flagship after opening numerous smaller stores in New York over the past few years.
“New York is on sale to some degree, and that’s what’s generating interest,” said Jeffrey Roseman, executive vice president at Newmark Knight Frank. “A bunch of companies are kicking the tires for flagship stores because the market is at a unique place — a year and a half ago, rents were a lot higher than they are now.”
Tenants have their pick of prime spaces on Fifth and Madison avenues as well as in the Flatiron District. In the third quarter, availability rates were above 9 percent in six out of seven submarkets tracked by Cushman & Wakefield.
The new flurry of tire-kicking comes after a round of flagship openings on deals in the pipeline before the economy soured. They include JCPenney’s move into 150,000 square feet in the Manhattan Mall, Hollister’s opening at 600 Broadway, and last month’s opening of Victoria’s Secret’s 24,000-square-foot Soho flagship at 591-593 Broadway.
At 666 Fifth, the signed commitment that C & W’s Mendelson has represents his first flagship deal of 2009, he said. If the deal goes through, a European fashion retailer will pay far less than the $2,000-plus-per-square-foot rent the space commanded a year ago.