Neighborhood newbies are altering the retail complexion of the Flatiron District.
More than a half-dozen store vacancies pepper Broadway’s home furnishings strip. Now, as fashion retailers such as True Religion set up shop on the avenue, the area’s identity is in flux.
At the same time, signs exist that the area’s fashion corridor, Fifth Avenue, is having a midlife crisis.
Leases are coming due on several stores there, including Club Monaco, Victoria’s Secret, Anthropologie and Nine West. While prices on Fifth Avenue remain steep, brokers said rent hikes could spark defections and push rents downward for the whole strip between 14th and 23rd streets.
For the moment, the huge pedestrian traffic that Union Square generates is having a halo effect on the Flatiron District to the north on Broadway, brokers said.
“Some people think [Broadway] has taken over Fifth Avenue as the pedestrian boulevard,” noted Ben Fox, president of Winick Realty Group.
And unlike the Meatpacking District or Soho, “it’s not tourist shopping, it’s people who live in the neighborhood that are shopping,” he said.
Fox is handling two vacancies in the area: 865 Broadway, between 17th and 18th streets, and 893 Broadway, between 19th and 20th streets.
Brokers said that prices range between $200 and $300 per square foot in the Flatiron district along Broadway. These prices have remained relatively stable, although there is a threat that they may soften.
Premium denim merchant True Religion just recently opened at 863 Broadway, between 17th and 18th streets. Right next door at 861 Broadway, Steve Madden opened in the former Caesar’s Pizza shop, and G-Star Raw, the edgy denim retailer, opened at 873 Broadway.
These are the latest retailers to edge in on what has traditionally been home furnishings turf, and others could be on the way. The available retail space on Broadway between 17th and 23rd streets includes 900 and 936 Broadway, spots formerly occupied by Bombay Company and Domain, respectively.
“There’s been a transformation from home furnishings to fashion,” said Mark Finkelstein, president of Retail Strategies. “There’s been a steady decline of home furnishings retailers on that strip.”
He cited 901 Broadway at 20th Street, where the Villeroy & Boch tabletop shop closed, as one of several home goods departures.
Last fall, Miss Sixty, the edgy Italian sportswear chain, took over the space.
The reason for the defections by home-furnishing stores? Rising rents. Analysts say these types of stores generally generate lower margins than apparel stores do, and so they are getting priced out of the area (see Home stores packing it up).
Furthermore, the home-furnishing industry has been hurt by the national housing crisis; Domain and Bombay recently went bankrupt.
At the same time, fashion tenants now view Broadway as a less expensive alternative to Fifth Avenue, where asking rents can run as high as $450 a square foot.
Both the Bombay and the Domain locations have been scouted by home-furnishing chains, which have passed on leases because of the costs. Williams-Sonoma eyed the location vacated by Bombay but ultimately turned it down, said Finkelstein, the retailer’s broker.
Home furnishing retailers Between the Sheets, Natuzzi and Kalaty Carpet scouted the Domain location but got sticker shock and couldn’t cough up the asking rent of $200 per square foot, said Mark Kapnick, managing director of Robert K. Futterman & Associates, the firm handling the lease.
Brokers said that instead, they expect some of Fifth Avenue’s fashion fixtures to move a block over to Broadway.
Indeed, fashion tenants from Fifth Avenue seeking to “downsize” their space by moving east are actively eyeing vacant spots along Broadway. Possible jumpers include Club Monaco, whose asking rent at its 160 Fifth Avenue store at 21st Street is double that of on Broadway and whose lease is up next year.
“As leases are coming due, there will be some measure of musical chairs” among retailers in the Flatiron District, Kapnick said.
Presently, asking rents on Fifth Avenue range from $400 to $450 a square foot. In this recessionary climate, retailers are balking at those prices.
“On Fifth Avenue, middle age has set in,” Fox said. “The feeding frenzy, where retailers would pay anything to secure space, has stopped,” added Robin Abrams, executive vice president of the Lansco Group.
Brokers say landlords have been slow to adjust to the changed market on Fifth Avenue. “In certain ‘A’ locations [on Fifth Avenue], the landlords haven’t budged on their asking rents,” Finkelstein said.
The Club Monaco site at 160 Fifth Avenue was put on the market last year at $400 a square foot for the ground floor space. When the space was leased about 15 years ago, asking rents in the area were about $85 per square foot.
The landlord’s unrealistic rent expectation could be why Club Monaco has yet to renew the lease, Abrams said.
“Landlords have some lofty rent expectations on Fifth Avenue, [but retailers] are becoming more cautious about their bottom line,” Kapnick said.
Not all Fifth Ave landlords are obstinate.
The Lansco Group recently brokered the retail lease at 73 Fifth Avenue for 7 For All Mankind, the high-end denim merchant.
The asking rent on that space was $300 per square foot, below the average price on the strip.
The deal was reportedly done at $250 per square foot, a far cry from the $400-plus asking rents on the avenue, sources estimated. The landlord was more concerned with securing a financially stable tenant than merely the highest bidder, Abrams said.
“I think you’ll see some new faces, and a small rent adjustment downward,” said Kapnick.