Retail rent drops offset by concessions

Average asking rents for retail space in Manhattan fell modestly in September compared to the same month last year, according to a Real Estate Board of New York report released today.

The report says that prices in all available retail space in the borough fell 3 percent to $129 per square foot from $133 per square foot between September 2007 and September 2008, with the largest decrease in Upper Manhattan, where asking prices fell 26 percent to $60 per foot from $82 a square foot. REBNY said asking retail rents also declined on the West Side and Midtown, but rose on the East Side, Midtown South and Downtown.

Fred Posniak, a senior vice president at W&M Properties of New York, said the reason the rent drops are not more severe is that landlords are giving more in concession packages, a trend which he said will likely continue.

“What has been coming to light over the past few months, and more in the coming months, is concession packages. I think you will see throughout Manhattan that you will wind up getting more free rent … we are not seeing a true drop in rents but activity is stagnant,” he said.

Jonathan Anapol, president of Prime Manhattan Realty, which mostly represents tenants, said he has won concessions of as much as 25 percent in retail leases in the past month. He did not attend the meeting.

“We are finding landlords are open to negotiating 25 to 30 percent off prices,” he said. He said he was in negotiations with a landlord for a space of more than 2,000 Square Feet On Madison Avenue between 60th and 79th streets.

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“The asking rents of $1,200 to $1,400 are being negotiated down to $800 to $1,000 per square foot … In this environment the landlord will agree because [of] the uncertainty that the price in a month or two might be lower,” he said.

Some real estate experts said the outlook was bleaker than REBNY’s report indicated.

Real estate attorney Jonathan Adelsberg, co-chair of the commercial leasing practice at Herrick Feinstein, said asking rents do not reflect taking rents.

“Tenants have become a lot more aggressive,” said Adelsberg, who also did not attend the meeting. “You are going to have a lot of tenants closing shop.” Between retail, restaurant and bank consolidations, Adelsberg said there will be a lot of space put back on the market. “With more supply rents will drop further.”

He said some corridors, such as Fifth Avenue and Madison Avenue, where REBNY reported asking rent increases, would hold up better.

“Those are smaller boutique locations. They are more showpieces,” he said, and are not as tied to retail revenue. “But I anticipate that they will fall, too.”

The report comes as CB Richard Ellis reported average asking office rents fell by 1 percent in September over the previous month and wider declines were expected amid predictions of job losses and a weak holiday season.