New York City shoppers are not so different from their suburban counterparts, except they arrive at stores via subway, rather than in SUVs. National retailers, from Home Depot to Whole Foods, have made successful inroads in Manhattan, and the five boroughs are seen as promising territory for chains like Wal-Mart, which has battled unsuccessfully to gain a foothold in the city. Meanwhile, some trendy areas, like the Meatpacking District and Nolita, may be overrated as retail destinations.
The Real Deal recently talked to leading brokers about the direction of the Manhattan retail market, which is still seeing sky-high store rents and low vacancy levels.
Benjamin Fox
principal and executive vice president, Newmark Knight Frank
Q. What’s the next retail hot spot in the city and Manhattan?
A. To some extent the whole area from Seventh Avenue to 10th Avenue from 34th to 30th streets — the Javits Center, Penn Station, the soon-to-be-old Madison Square Garden — that chunk of turf I think is going to become very active along with Downtown. East Harlem, from First and Third avenues from 106th to 125th streets, is also going to start to emerge.
Q. What’s the most overrated retail neighborhood?
A. Nolita. The rents are not commensurate with the customer traffic and it is not developing the synergy that Soho and Noho have developed from the standpoint of co-tenancy and so forth.
Q. Who’s the next big retailer about to come? What’s the next big retail trend?
A. I think it will be the continuation of new and different supermarkets and other food purveyors, along the Whole Foods model. There is a desperate need for clean, modern, fully stocked grocery stores with a large prepared food component.
Q. How much higher can retail rents go?
A. It’s pure supply and demand. As long as there are more tenants looking for space in certain areas where there is very little available, you are going to see rents continue to rise or stabilize at high numbers.
Q. Is there a retail rent bubble at all?
A. I don’t like the word bubble. I think that at the moment those spaces that have artificially high pricing will certainly come down, but in terms of wholesale reductions in rent levels, I don’t see it.
Q. Where are vacancy levels at overall?
A. I’ve never been able to understand the significance of the Real Estate Board of New York report. Unlike office buildings, retail is an entirely different animal. The vacancy rate in a tertiary area may not result from a bad market but a slowly emerging market where new construction may sit as retailers wait for the neighborhood to mature. That is different than a vacant store on 53rd Street and Madison Avenue, which would be a telling sign; but you don’t see any of that in the city. I don’t ascribe to a vacancy rate; I look at where the vacancies are.
Q. Where are you seeing the most vacancies?
A. I think there are very few anywhere. Maybe a few on Columbus Avenue and certain parts of Downtown, but overall nowhere where it counts.
Q. Where is the boom in bank branches now? Has it started to moderate? Is there any scaling back?
A. It has definitely moderated and they are definitely scaling back. How many bank branches can you have on every corner? You might say it has reached saturation. We are seeing consolidation of certain banks, which will create sublease space rather than new locations.
Q. What’s the most interesting retail in the city right now (that’s not a client of yours)?
A. Whole Foods — it’s different, plus they are tremendously exciting stores to shop in, and hang out and have an espresso. In some instances they also serve as a community watering hole for young mothers and infant children.
Q. What retail trend is on its way out?
A. Blockbuster video and video stores in general. Today you can order movies on your TV or order movies mailed to your home.
Dan Gronich
chairman, Grubb & Ellis New York
Q. What’s the main obstacle to higher-end retail in Lower Manhattan?
A. What that area is lacking is a high-end district. They are older buildings, and the way they are designed you don’t have a string of glass. The BMW showroom on Wall Street is not open at night, and they are there as a destination and go after the Wall Street traders. Hermes got an inexpensive deal from what I understand. I think they get the 9-to-5 business of the investment community. I have my doubts that they will get tourists.
The retail under the former World Trade Center was getting increasingly high-end, with store after store. There is a lot of discussion now of the 300,000 to 500,000 square feet of retail planned there. It’s better to have a shopping center strip that works from building to building. It hasn’t been designed yet so nobody has a clue what it’s going to look like.
Q. Is the Internet going to weaken retail in general or, if not, how will it change retail in five or 10 years?
A. In my opinion the Internet will not significantly weaken retail because New York is a weekend strolling city primarily successful because there are many stores that are unique to New York. The main impact will be on the chain stores; the sellers of non-perishable commodities like CDs, books, cosmetics and cookware. I worry about place like Banana Republic and the Gap where you can try on clothes and then go on the Internet to buy. The challenge is to become successful at the bricks and clicks system where one helps the other.
David Firestein
principal, Northwest Atlantic Partners
Q. What’s the next retail hot spot in the city and Manhattan?
A. In Manhattan, lower Soho south of Broome to Canal continues to emerge with Bloomingdale’s already in the area. In Harlem, 125th Street has been hot for a couple of years and that’s spreading. Lenox Avenue is going to be another good retail corridor. In Brooklyn, in Gowanus, there’s the new Whole Foods.
Q. Who’s the next big retailer about to come?
A. I think it will be a big box retailer with a new format that fits the city. It might be a 100,000-square-foot-plus concept in a new format that they can fit into the city to make it work as urban retail.
Q. How much higher can retail rents go?
A. Not much. The pattern right now is they are sort of holding steady.
Q. What sorts of concessions are tenants getting from landlords and how is this changing?
A. Tenants are still getting free rent and services such as space demolition which will bring services to the place, like water, sewer, electric, but not much beyond that.
Q. Where are vacancy levels at overall?
A. Vacancies are low, less than 10 percent. There are a lot of vacancies on Fifth Avenue, north of Flatiron and south of the Empire State Building between 24th to 31st streets.
Q. Where is the boom in bank branches at — has it started to moderate?
A. There are cutbacks; as a group the banks are not nearly as aggressive although most are still doing deals. For a while they were a driving force in pushing rents in the market.
Q. What’s the most interesting retail in the city right now (that’s not one of your clients)?
A. Apple is interesting and exciting. Japanese clothing chain Uniqlo is interesting.
Q. What is the most underserved retail niche, in terms of a need people have that is not being met?
A. Service businesses in general have been hard hit by high rents; places like hardware stores and locksmiths. They are having a hard time; when their lease comes up, they get pushed out. Without those services readily available, in some cases people are going to have to travel. They are a convenience that residents should be able to have within a block or two of where they live, but in some cases that’s not going to happen.
Q. How big a chunk of total retail business involves working with new development, given the amount of construction going on in the city?
A. Honestly, not very much. It is clear most of the new development is residential, with some retail, but it is still a small part of the business, maybe 10 percent of the retail deals.
Q. What are the pros and cons of working this kind of deal?
A. You get new, clean space and fewer problems, but you have to wait around for it. Most retailers don’t have a lot of patience and smaller retailers don’t want to sign a deal for two to three years from now. Besides, new construction is usually more expensive.
Q. Residential and retail brokerages have been combining — Faith Consolo and her team joined Prudential Douglas Elliman and Garrick-Aug joined forces with Century 21 Kevin B. Brown & Associates. Do you think this trend will continue?
A. The marriage with Prudential Douglas Elliman and Faith I don’t see as a trend; the synergy isn’t there. Even with a retail and office brokerage there’s synergy there because you are taking an office building on and doing the retail on the ground floor. I don’t see it as a trend; I don’t hear a buzz of other people talking about it.
Joanne Podell
senior director, Cushman & Wakefield
Q. What’s the most overrated retail neighborhood?
A. Flatiron. It’s not that it’s overrated, it’s just that the rents are too high. It has to be a rent that’s justifiable based on volume. And it’s a challenge to find space in the market.
Q. Who’s the next big retailer about to come?
A. Mango out of Spain is a good company, and they merchandise well. Any international company that comes to this country has to think national rollout because the cost of opening only in one market doesn’t make sense.
Q. How much higher can retail rents go?
A. In certain markets there’s some room for growth but for the most part it’s already a struggle for retailers to make deals in New York because they are high.
Q. How big a chunk of total retail business involves working with new development, given the amount of construction going on in the city?
A. On a consulting basis, a considerable amount. Most developers come to us when they are contemplating a new development or buying a building to understand what they can anticipate in revenue.
Patrick Breslin
president, GVA Williams Retail Group
Q. What’s the next big retail trend?
A. The Meatpacking District is still going strong, and there are still a number of buildings there with the opportunity to be converted. That’s part of a trend toward connecting all the neighborhoods into one contiguous shopping area. The 20s between 10th and 11th avenues was a no man’s land 10 years ago. Now at 25th Street and 11th Avenue you need $1 or $1.5 million [for rent].
Q. What’s the most overrated retail neighborhood?
A. Probably Madison Avenue in the 60s and 70s. It’s hard to keep a straight face when a possible tenant asks what the rent is. Recently a customer grabbed me and said, “Are we buying this building or are we renting?” They were asking seriously, but we said, “No, it’s the rent.” The numbers are dangerous. Once you get up that high, to $800 to $1,000 per square foot, it’s hard for a retailer to make money no matter who you are.
Q. Who’s the next big retailer about to come in Manhattan?
A. Target or Wal-Mart. Once one gets their foot in first, whichever one it is, it is almost guaranteed success here out of the sheer volume that they’ll do. The number would be bigger than they ever imagined. Wal-Mart wants parking in Manhattan. If they get everything they want with parking, it’s got to be west and north of 116th Street on the West Side. You’d have to knock down a building and find a footprint large enough for parking. It will be in a fringe neighborhood with industrial type space along the West Side or along the river or in Washington Heights, which could be the next neighborhood that will try to accommodate these retailers.
Q. How much higher can retail rents go?
A. They’ll go higher as long as someone is willing to pay. From a common sense standpoint, I personally don’t see how it could go much higher. The outer boroughs will continue to roll. Their rents are drastically increasing as well; the ripple effect has been beneficial to everyone around here.
Q. What is the most underserved retail niche?
A. We are missing large supermarkets, a true suburban supermarket in the city.
Q. Is the Internet going to weaken retail in general or, if not, how will it change retail in five or 10 years?
A. I don’t think it will weaken it. I think a lot of people like to touch and feel before they buy. The retail banking industry said several years ago that online would take off, so they all started closing their branches. Now some are back and renting for three to four times what they were paying before. It’s cyclical; everything goes in a big circle.
Robert Gibson
executive vice president, CBRE
Q. What’s the most overrated retail neighborhood?
A. I don’t like to put down the Meatpacking District. It serves a purpose for trendier retailers to say they are there, but they don’t do the business they want to do there.
Q. Who’s the next big retailer about to come? What’s the next big retail trend?
A. I see Mango from Spain, Top Shop from Britain — we’ve read articles and heard they are in the marketplace. Offering moderate- to lower-priced goods with high fashion similar to H & M; that’s what the city is looking for. Trendier, less expensive companies have a larger market that they go after, while some of the more traditional retailers have slowed down because they can’t afford the rents.
Q. What is the most underserved retail niche, in terms of a need people have that is not being met?
A. Supermarkets and food stores. Supermarkets are not high rent payers. They lost a lot of market share as the market got stronger and they lost real estate. In the up and coming and even mature areas there are not enough places to shop for food. Also, there are not a lot of gas stations and we got used to it. If the land is zoned for a larger building then it doesn’t make sense to have a gas station on that property. Gas stations were lost on the Upper East Side because of that.
Q. Residential and retail brokerages have been combining — Faith Consolo joined Prudential Douglas Elliman and Garrick-Aug joined forces with Century 21 Kevin B. Brown & Associates. Do you think this trend will continue?
A. Yes. Residential companies who have good market share and don’t see market share growing need to expand, and it makes sense to buy and grow a commercial division. Landlords are looking for more services, and the day of the small real estate boutique is going away.
Q. What retail trend is on its way out?
A. Since the market is very expensive, small retailers like optical shops, florists, and liquor stores that supply residents are slowly being pushed to cheaper spaces and it is harder for them to find space with the very expensive rent in this market.
Q. What’s the biggest retailer scaling back its presence in the city?
A. Certainly we’ve seen the Gap and Banana Republic pull back, but they had a lot of real estate.
Robin Abrams
executive vice president, Lansco Corp.
Q. Who’s the next big retailer about to come?
A. We’d like to think that it’s Uniqlo, the Japanese company with multiple stores all over Asia. Its first U.S. flagship store will open in Soho this fall at 546 Broadway, where they have leased 50,000 square feet.
Q. What’s the next big retail trend?
A. Tavalon is taking the best of Starbucks and Jamba Juice with tea drinks and healthy add-ins. I think we will see more of these tea-based concepts popping up. I think we’re already seeing more specialty food stores like Whole Foods and Trader Joe’s. Based on their success we’ll see more of that.
Q. Where are you seeing $1,000-per-square-foot rents?
A. There were a lot of spaces on the market at the $700- to $900-per-square-foot mark, then spaces like [Harry] Macklowe’s piece at the General Motors Building [where Apple took space] came on the market and that was new and had pizzazz with all glass. That came on the market at $1,200 a square foot and that became a benchmark that brought up the average.
Q. What sorts of concessions are tenants getting from landlords and how is this changing?
A. Traditionally in New York what you see is what you get — it comes as is. Tenants do their own work and generally that is still the norm. Landlords don’t usually build out a space.
Q. What’s the most interesting retail in the city right now (that’s not a client of yours)?
A. I think the Apple store. The fact that they went into what was a dead plaza area at the General Motors building and did a store belowground with an entrance at ground-floor level and did a fabulous store below. That whole area is changing. You have excitement like the Plaza Hotel with new retail, and Apple is open 24 hours a day.
Q. What is the most underserved retail niche?
A. The teen and tween population is underserved because a lot of the stores that are mall-based have not come to the city. Even Abercrombie & Fitch didn’t have a kids store in the city. Stores like the Limited Too; I see growth potential in that category of tenants for that age group.
Q. What retail trend is on its way out?
A. Video stores. Also, the smaller movie houses are also shutting down, those with single- and double-screened theaters. The Gap was everywhere and they were consistently expanding and developing new concepts, but they have slowed down, and I don’t see them doing anything new.