By Brian Segall, vice president, RKF
Despite news reports predicting doom and gloom, retail real estate investors’ appetite for high-quality retail deals in New York City is still very strong.
It is indeed true that investors have adjusted their strategies, avoiding overly speculative moves and going for more secure investment opportunities — but this is an expected adjustment from the last unprecedented rent growth cycle.
As a global city, New York appeals to domestic and foreign investors who continue to chase opportunities. Institutional investors, such as pension funds and overseas investors, all want a part of retail here. This is because there are so many submarkets from which to choose, each with unique characteristics and unique opportunities.
With neighborhoods’ characteristics evolving in a cyclical way, what was considered a secure investment yesterday might not be so today, and vice versa.
SoHo transformed from a manufacturing district in the 1960s to a bohemian enclave in the 1970s to the bustling retail scene it is today.
In the late 1990s, the Meatpacking District was among the hottest retail investment markets in the city; it slowed down for a while, only to undergo a recent upsurge due to the opening of the Whitney Museum and the expansion of the High Line public park.
The long-evolving Bowery district, while overall very dynamic, has pockets that offer unique advantages, such as proximity to cultural institutions like the New Museum — a factor that generated investor enthusiasm for a recent offering.
When marketing a property, one has to have in-depth knowledge of these transformations. For example, we are marketing 100 North 3rd Street in Williamsburg, on what has emerged as the premier block for boutique tenants.
This corridor boasts the strongest presence of sophisticated national and Brooklyn-based brands like Mast Brothers Chocolate, Brooklyn Denim Co., RRL, Steven Alan Optical and Pilgrim Surf Shop.
Additionally, some of the borough’s most popular restaurants — La Esquina, Egg and Radegast Hall and Biergarten — call North 3rd Street home. Nearby are Apple, FlyWheel and byChloe. These leading brands chose this street for their first Brooklyn location. The upcoming vacancy will attract tenants that complement the hip mix of retailers and restaurants.
Neighborhoods with strong residential components are also emerging in NYC, such as the Financial District, where nearby TAMI workers are arriving in droves.
By going for these high-profile neighborhoods, investors ensure stability. Another example is Tribeca, where increasing foot traffic has created abundant opportunities for investors seeking high-quality retail condos that offer proximity to growing live-work-play populations.
To be sure, location on its own is not the only characteristic investors value. The quality of a particular asset or group of assets has never been more important.
It’s not new that a corner property or in-line space with excellent frontage and high ceilings is more valuable than one in the middle of a block, but now flexibility is coming into play more than ever.
Can a space be made to suit either a restaurant, a retail store or a gym? Are larger spaces divisible in ways that let them accommodate today’s retailers, most of whom no longer need a big back-of-house space?
One example is the space we at RKF are marketing at 882 Fulton Street, a new development retail space located on the ground floor of a newly-constructed, 50-unit luxury residential condominium in Clinton Hill, where the 156 feet of frontage can suit up to four retailers, including food purveyors, in spaces ranging in size from 1,500 to 2,000 square feet.
Overall, the retail condo market is robust and will stay that way, with more product on the horizon. Developers want to put up buildings and then sell both the residential and commercial spaces, not get into the business of managing spaces.
This, plus the increase in the number of properties with built-in flexibility, is bringing a lot of investment opportunity to the market, and the smart money knows it.