Retail cools in Hamptons

<i>Landlords scramble to fill space, offer seasonal leases to high-profile stores</i>

Walk down Main Street in East Hampton Village and there is little sign that times have been tough on commercial landlords. J.Crew just expanded into a 5,000-square-foot store at 14 Main Street. Tommy Hilfiger recently opened at 69 Main Street. Michael Kors is opening up at 48 Main Street. And Hermès is coming to 63 Main Street.

“New this year we have Brooks Brothers right beside us at 54 Main,” said Judi Desiderio, CEO and president of Town and Country Real Estate in East Hampton Village. And Brooks Brothers has some high-profile neighbors. “On the other side is Dylan’s Candy store, owned by Ralph Lauren’s daughter Dylan. Next to her is Gucci,” said Desiderio.

But everything is not as it appears. The deals for some new stores were actually made before the economy collapsed last fall, and several of those retailers only took short-term leases. Michael Kors and Hermès both signed seasonal leases to gauge response before committing long term, said Hal Zwick, a broker at Devlin McNiff.

Of course that’s better than those who have decided not to commit at all.

“Last July we had 12 to 15 national high-end retailers inquiring about long-term leases for spring of 2009,” said Zwick. “They all went away in the fall.”

Asking rents in prime East Hampton haven’t dropped all that steeply, but landlords are ultimately making some rent concessions.

“East Hampton still commands a premium,” said Robert Kohr, an associate broker at Prudential Douglas Elliman. “It was up to $250 a foot [a year to two years ago], but right now it’s $175 to $200.”

“I would say that the asking rents haven’t changed, but what they’re getting has changed by 20 or 25 percent less,” said Desiderio.

Certainly, landlords are doing their best in bad conditions. In addition to seasonal leases, some landlords in the Hamptons, reluctant to agree to a lower rent base for the long-term, have also taken to offering gun-shy tenants teaser rates, giving a discount for the first two or three years with the stipulation the rent will go up later.

“Landlords are being flexible,” Desiderio said. “It makes no sense for them to leave it empty.”

She cited the location of the Hermès store, which sat empty for two years. “If a landlord asks too much it doesn’t serve anything and it stays vacant.

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“I don’t see it being hit hard out here, because there is a finite amount of space. In East Hampton there are only two blocks in the core business district, in Southampton there are four blocks,” she said. “We might have two vacancies right now on Main Street, and in Southampton they might have one or two.”

Zwick, too, feels confident that most of the storefronts on Main Street will be ultimately rented, but on Jobs Lane, another business corridor that gets much less foot traffic, he’s less hopeful.

Further east in Montauk, times have been tougher. “Off Main Street [in Montauk] there’s a lot for rent,” said Chris Coleman, associate at the Corcoran Group. “The rents are down and guys are looking to do deals. They’re giving 20 to 30 percent off what they were asking a year ago.”

Montauk, a mellow beach town compared to East Hamptons’ see-and-be-seen social scene, didn’t see a lot of growth until just a couple years ago, when it started to gain interest from nightclub owners and restaurateurs.

“[Nightclubs] were a trend because the price point was so low some guy could come and open a club [for less] as opposed to in Southampton,” Coleman said. “But everything has come to a halt.”

“The buzz for Montauk is dying,” said Zwick, “because of the economy.”

Compounding that is all the growth the area saw leading up to this year. “It’s been overbuilt for the demand. There was a lot of building recently and those are the vacancies that are now off Main Street,” said Coleman. “Now it’s like ‘Deal City’ because the guy next door will rent it to you for cheaper. People are renegotiating their leases.”

For their part, brokers remain hopeful.

“If people are not going to travel this summer, they’re not going to hop on a plane and go abroad,” said Kohr. “They might decide just to stay here.”