Downtown’s Retail Rebuild

National companies wary despite big demand

When the discussion turns to Downtown rebuilding, the Freedom Tower, Ground Zero memorials and the residential conversion boom in the area are usually leading topics.

Retail development, if it comes up at all, is usually a secondary concern. While retail plans at Ground Zero are understandably still evolving, many commercial brokers say the lingering uncertainty about what will go there is hurting retail in the much larger Downtown area.

Brokers and groups like the Alliance for Downtown New York are fighting to bring more upscale retail tenants Downtown to replace what was lost at the World Trade Center site, as well as bring in some basic services that are lacking – like supermarkets. They say they often face an uphill battle trying to convince national retailers to open up Downtown. Ann Taylor, Nine West, Borders and Banana Republic have been some of the few successes since Sept. 11.

“The area has gotten a lot of negative press in terms of saying all these people were leaving when they actually haven’t been,” said Gary Alterman, executive vice president and principal at Newmark & Co. “A lot of nationals don’t understand the financial district.”

Obstacles do remain – good spaces can be difficult to find, and there are construction, traffic and security issues. Co-tenancy with lower-end retailers like wireless stores and fast food joints also deters some national chains.

But Downtown boasts obvious advantages as the third-largest business district in the United States and the fastest growing residential neighborhood in New York City, with an estimated $1.4 billion in unmet retail demand, according to a recent study by Economic Research Associates and Madison HGCD.

There have been positive outcomes since Sept. 11, like at 2 Broadway, where six national retailers, including Ann Taylor Loft and Nine West, have moved in. Borders also relocated Downtown after being displaced by Sept. 11. Three World Financial Center, which recently signed on Banana Republic in a deal one broker called “a pleasant surprise,” could also see more high-end deals soon.

There is plenty of space for retail outside the Ground Zero site. While a total of 325,000 square feet of retail was destroyed at the World Trade Center, there is still more than 10 times that amount – 3 million square feet – of retail in Lower Manhattan below Chambers Street. Much of it is relatively low-end.

“Nationals often say they want to hold off until they figure out what’s going on with Ground Zero,” said Richard Hodos, president of Madison HGCD. “But look at it today. There is a lot of retail space that can be developed in Downtown that has nothing to do with Ground Zero.”

There is also a slowly growing sense of clarity about the Trade Center rebuild, even if a design for the retail portion of the site hasn’t been determined yet.

In December, the Port Authority bought out Westfield America, the Australian mall operator that held the retail leases at the trade center, for $140 million. Hodos said the move bodes well for retailers, because Westfield would have likely sought to build a large urban mall.

“I think that it’s a great thing that Westfield backed out,” said Hodos. “A mall is not anything that I wanted to see there.”

Instead, it seems likely that retail will be predominantly street level and below ground. There will also be efforts to restore the street grid so that Downtown isn’t bifurcated, with the eastern part cut off from the western portion, as it was when the Trade Center stood there. The intersection of Broadway and Fulton will become a key hub, and Fulton Street will run from east to west across much of Downtown.

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“Fulton Street is where retailers will look to expand,” said Ariel Schuster, senior director with Robert K. Futterman & Associates.

Gene Spiegelman, senior director for the retail services group at Cushman & Wakefield, said the transportation infrastructure that will be built Downtown, including an underground people mover, will help the area enormously. “It’s hard to get around now,” he said. “But the circulation is going to be great.”

Still, it’s unlikely that what will be rebuilt at Ground Zero will match what existed before Sept. 11. “The sheer density of office workers and the way transportation fed into the area means that no one will ever do the same numbers,” said Schuster. At the pinnacle, stores like Duane Reade were paying $3,500 a square foot in rent. What was destroyed were many of the “upper moderate to better retailers,” like Coach, J. Crew and others, said Hodos. Brokers are trying to lure them back.

Today, much of the focus is on improving retail on Broadway and to the east, and adding high-end retailers at the World Financial Center on the west side.

There are a number of challenges facing retailers looking for space on Broadway, the main north-south thoroughfare. Much of Lower Broadway is dominated by institutional spaces occupied by banks and post offices, and unavailable for retail. Many retail spaces have little frontage, and space on side streets can be antiquated. Overall, vacancy is low. Downtown vacancy is at around 11.6 percent for retail.

“The spaces down here work for some retailers and not for others,” said Mai-Anh Tran, director of financial programs for the Downtown Alliance. “Fitting within the space is part of the challenge.”

Hodos said retail in parts of Downtown is characterized to some degree by “schlock.” Having wireless stores or fast food franchises in a building can be a problem when trying to bring in more upscale retailers who don’t want to share space with those stores.”There are a lot of situations where there are co-tenancy issues,” he said.

Brokers can work together to somehow merchandise the street a little better, Hodos said, but ultimate responsibility rests with landlords. “If all they look at is the dollars, gold chains will win. If they look at credit, we have a chance.”

In one recent example, a wireless company was competing with cosmetics retailer Sephora for a space in a Broadway building. The wireless store agreed to pay more rent, and now the landlord has two wireless stores side-by-side, a bad mix.

One of the big successes Downtown has been 2 Broadway, whose tenants in addition to Ann Taylor and Nine West include Aerosole, GNC, Starbucks and Mexican restaurant chain Chipotle. Ann Taylor’s opening in April 2002 marked the first brand name retail store to open in Lower Manhattan after Sept. 11.

Alterman of Newmark represented 2 Broadway in all those lease deals, which totaled more than 12,000 square feet. Drawing points for tenants included the fact that the 1956 building affords “lots of glass frontage,” he said. Ann Taylor has about 80 feet of frontage on Broadway, “as opposed to the 12 feet of frontage you might find in other buildings in the area,” Alterman said.

The location also makes sense given the amount of traffic nearby. There are two subway lines directly outside the building, and the Staten Island ferry is two blocks away. Overall, there are some 280,782 workers Downtown, with an enormous amount of buying power. Lower Manhattan has 8.1 million annual visitors and the fastest growing residential population in the city: 31,529 residents with an average annual income of $140,000.

The World Financial Center has also seen some good results recently. Schuster said he was “pleasantly surprised” by Banana Republic’s decision to take 8,000 square feet at Three World Financial Center. Steve Asch, executive vice president at Newmark, represented Banana Republic in the deal and said the company decided to go there “on the basis of the office population” and that the deal didn’t hinge on any expectations about the Ground Zero rebuild.

Going forward, Tran of the Downtown Alliance said a recent study said there is room for more career apparel and specialty food stores on Lower Broadway and more dining and entertainment and career apparel stores on the middle part of Broadway near the Trade Center site. There is also demand for a full-sized supermarket Downtown, an amenity that will become more necessary as the area gains residents.

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