“People Get Ready,” the sign urges. No, it’s not Curtis Mayfield with a message about marching on Washington for civil rights – it’s trendy teen retailer Urban Outfitters, alerting Brooklyn shoppers to its impending arrival at 164 Atlantic Avenue at Clinton Street.
That stretch of Atlantic is better known for ethnic grocer Sahadi’s and a cluster of Middle Eastern restaurants. One blogger commented that the neighborhood was a little “mature” for the apparel and home furnishings chain, which is pitched to a young and lithe audience. But with new towers rising nearby and reports that New York University is scouting for more space in the boroughs, it may be a good fit after all.
Urban Outfitters is hardly the only national retailer testing the waters outside of Manhattan. Brooklyn’s residential construction boom has lured national brands to set up shop in a borough they might not have considered before. Particularly in downtown Brooklyn, where thousands of condos and hotel units are planned, developers are racing to bring corresponding levels of new retail.
However, an economic downturn, spinning out of the credit crisis, may put the brakes on future growth.
Pent-up demand
Retailers have been flocking to Brooklyn because even with the addition of an estimated 1.9 million square feet of retail space since 2002, the borough still has fewer stores than might be expected based on its population. There are six square feet of shopping space per Brooklyn resident versus 22 for U.S. residents on average, according to the Brooklyn Chamber of Commerce, which has estimated that Brooklyn can easily absorb over double its current number, or 13 square feet per resident.
Last year alone, Starbucks and Lucky Brand Jeans came to Smith Street in Boerum Hill, while Morton’s the Steakhouse inked a deal for a 14,000-square-foot eatery, its first in the borough, in the New York Marriott near the Brooklyn Bridge. The restaurant is set to open in late 2008.
Middle American stalwart J.C. Penney, meanwhile, will replace homegrown discounter Conway in the Fulton Mall, and a massive Target is slated for a tower to rise on the site of Albee Square Mall.
“Brooklyn, retail-wise, is No. 2 on the radar screen,” second to Manhattan, says Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman.
Consolo says her clients are increasingly willing to look beyond the brownstone neighborhoods of Park Slope and Brooklyn Heights. She notes that she is showing clients spaces in Bay Ridge and Bensonhurst.
Tim King, senior partner at Massey Knakal, is bullish on downtown Brooklyn in particular. His firm is working on a couple of sites on Livingston Street – including a former parking lot at 230 Livingston that has been transformed into State Renaissance Court, a mixed-used residential and commercial development with 15,000 square feet of retail space.
The plan is to ride the wave of the area’s growth. More than 5,000 condominium units, 2,000 hotel rooms, and hundreds of thousands of square feet of retail and office space are currently in the development pipeline for downtown Brooklyn.
Slowing climate
Yet even as trendy national chains debut on previously gritty Brooklyn streets, concerns are mounting. By the end of last year, brokers and developers said speculative deals, in particular, were slowing. Prices for some development sites in Brooklyn were down 5 to 10 percent at the end of last year versus six months earlier.
Lackluster holiday sales and economic weakness added to the gloom.
“The cloud on the horizon could be the economy,” says Patrick Breslin, president of retail at GVA Worldwide. “That’s the one scaring me a little bit now.”
Retail is now seen as a troubled sector of the economy. While the luxury segment is seen as faring better, the weak housing market, higher gas prices and softer consumer spending are having a debilitating impact on mass retailers. Many suffered poor holiday sales and lowered their expectations for 2008, causing their stock prices to wobble. Shortfalls during that key profit-generating quarter could cause some retail chains to curtail expansion plans in 2008.
Still, developers like Joshua Muss, president of Muss Development, are betting on the borough’s ability to attract upscale retailers: The company’s major retail undertaking at the New York Marriott at the Brooklyn Bridge in downtown Brooklyn provides the right venue for mid- to higher-scale national retailers, he said.
Until now there have been few retail developments concentrated in easily accessible areas that could supply the growing needs of families, well-heeled financial sector workers, and other new, deep-pocketed residents who have recently invested in homes and high-priced condominiums, he noted.
“Even where there is development, or even luxury [residential] development in Brooklyn Heights, Boerum Hill and Dumbo, there hasn’t been any high-level retail because there hasn’t been any appropriate location,” he said.
Marriott and Morton’s
Muss Development will be leasing the Marriott’s restaurant space to Morton’s the Steakhouse, bringing a nationally popular chain to Downtown Brooklyn. Restaurant reviewers are already predicting a rivalry with Peter Luger’s, the famed Williamsburg steakhouse.
In December, the company reported that it had entered into a contract to purchase the first two floors of 345 Adams Street from the City of New York, adjacent to the hotel. The firm said it would seek tenants for the 40,000 square feet of retail space.
For its retail spaces, Muss said his company is courting H & M, the Limited, Apple, and other large, national retailers that appeal to a wide financial and cultural spectrum of shoppers.
Muss’s plans will supplement many of the other retail changes occurring in the area, such as at the Fulton Mall.
Acadia Realty Trust, AvalonBay Communities and MacFarlane Partners purchased the lease on the Gallery at Fulton Mall, its attached parking lot, and the former Albee Square Mall from Thor Equities for about $120 million to build a 1.6 million-square-foot, mixed-use complex called the Center at Albee Square. The development will have retail, office, and residential rental units, including a new mall with 475,000 square feet of retail space.
“Downtown Brooklyn is witnessing a real renovation in terms of the retail market,” said Joe Chan, president of the Partnership for Downtown Brooklyn. He pointed to another similar success story, Brooklyn’s Target at the Atlantic Terminal, which he said generates the highest sales volume in the U.S. for the chain.
Not including Bruce Ratner’s Atlantic Yards project, 57 projects will be coming into the development pipeline over the next five years, Chan said.
With many people fleeing the higher prices of real estate in Manhattan, local incomes are increasing, especially in the areas around Downtown Brooklyn, he noted.
The Fulton Street shopping district has largely been “a limited retail diversity of cell phone and sneaker shops,” said Chan. While gaps in Brooklyn’s retail scene won’t be easy to fill—because of the size of the borough, its diverse enclaves, and the lack of destination stores such as a major home-furnishing store—that “is starting to change,” said Chan.
There is enough foot traffic to fuel a strong local retail scene: Not counting local residents, the downtown area’s population swells to 150,000 each day, thanks to people who are shopping in the area, including jurors, employees of the Brooklyn court system a few blocks away, 38,000 students at seven academic institutions, and employees at other businesses in the area.
Still, as retail storm clouds gather, developers may want to nail down those leases to national brands.
During a downturn, retail areas that really suffer are those “that never have gotten strong enough with national retailers, and that includes parts of downtown Brooklyn,” said Consolo.