Retail reset: Navigating the cooling market

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From the May issue: Less than three years ago, it seemed Manhattan’s retail market had no ceiling when it came to pricing. Asking rents in parts of Midtown and Soho grew by double-digit percentages, and investors spent billions of dollars for stakes in retail spaces with the expectation of big returns. Now, by most accounts, the market has surpassed its peak. Tenants are increasingly reluctant to ink leases at the record prices that some landlords want, and online competition continues to undercut in-store sales. Availability rates across Manhattan saw a 25 percent increase during the first quarter of 2017, according to data from CBRE. The average asking rent in the borough declined 2.7 percent, to $850 per square foot from $874 per square foot during the same time last year. And asking rents fell in 12 of the 16 corridors the real estate services firm tracks, with Fifth Avenue between 42nd and 49th streets showing the largest drop at just over 17 percent. From cutting their rents to offering generous concessions, retail landlords are doing what they can to fill vacancies in their buildings — some of which are encumbered by hundreds of millions of dollars in debt. “Landlords are trying to keep their existing tenants rather than create opportunities to jack up the rent by 20 percent,” said real estate attorney Joshua Stein.  Whether you call it a bubble, a correction or a plateau, the market has undoubtedly softened. This month, The Real Deal asked six experts in the industry how those changes are affecting their deal activity and how things will shake out in the future.