Black Friday has come and gone but there are still plenty of deals to be had for New York retailers, not on clothes or electronics, but on the stores themselves.
Average asking rents for ground floor retail spaces have ticked down in 13 of Manhattan’s top 17 shopping districts from fall 2016, according to the Real Estate Board of New York.
However, the city’s retail brokers are not concerned.
“It took a year to two years for everyone to start to come to their senses,” said Robin Abrams, vice chairman of retail at Eastern Consolidated. “Landlords wanted the sun and the moon and tenants, well, I’ll just say they wanted to give a lot less. We’re seeing a lot more deals being done now.”
Abrams, who is part of the 13-member REBNY advisory group that helped compile the report, said landlords have shown a willingness to be creative with leases to coax hesitant tenants back into the retail market. This includes longer rent-free lead times, shorter leases and, of course, cheaper rents.
REBNY president John Banks said the report drew some encouraging conclusions, but for the landlords represented by his group, he encouraged them to be open to lower rent rates if they want to keep tenants on the books long term.
“Across Manhattan’s wide-ranging retail landscape, personal consumption fundamentals and retail demand remain strong as we head into the holiday season,” Banks said in a statement.
“Our advisory group sees this period of declining average asking rents as an opportunity for owners and retailers to find a new equilibrium rent level that promotes long-term tenancy.”
Abrams emphasized that the data in the report represents a “snapshot of a moment in time” and she cautions against reading too much into averages, which are not always indicative of the current market and, in this case, dragged down by drops in low-end rents. However, she said a few key trends have been highlighted.
First of all, rents are coming down but that’s due, at least in part, to the staggering price surge the market saw a few years ago when landlord confidence was over inflated by a favorable economy. As the report notes, the market is going through a natural correction.
Likewise, skyrocketing rents sent many retailers fleeing from the brick and mortar world and into the apparent safe haven of e-commerce, but Abrams said there’s been a correction to that trend as well and even brands that were born online, such as The RealReal, Bonobos and Warby Parker, are seeing the benefits of a physical presence.
“There’s less concern over whether a tenant should have brick and mortar store versus online sales and there’s an understanding that there needs to be both,” she said. “It matters less if the sale comes in store or later online, but people want to be able to see things in person before they buy them.”
The report also shows a changing landscape, with prominent areas uptown giving way to hot new locales in Lower Manhattan.
Third Avenue between 60th Street and 72nd Street saw median asking rents slide 21 percent, from $385 psf to $275 psf from fall 2016 to now, according to report.
Meanwhile, across town on Columbus Avenue between 66th and 79th streets, rates also took a nose dive from $412 psf to $300 psf. Meanwhile, Broadway between Battery Park and Chambers Street saw asking rents shoot up from $350 psf to $400 psf.
East 86th Street between Lexington and Second avenues saw the biggest surge, shooting up 30 percent from $345 psf to $450 psf while Fifth Avenue between 14th and 23rd streets inched up 2 percent, from $400 psf last year to $409 this year. Certain strongholds, such a Madison Avenue on the Upper East Side and Broadway in the heart of Midtown, saw median prices fall slightly but asking rents remain stout at $1,247 p/s/f and $2,000 p/s/f, respectively.
Jordan Kaplan of CBRE, who also was part of the REBNY advisory group, said these areas did better because supply is limited and rents never got out of control.
“We need to be careful about putting every district in Manhattan in the same bucket,” Kaplan said. “While there may be a general sense of slowdown, overall each market has its own genetic make-up and there are opportunities for both landlords and tenants.”
Abrams said some areas, such as Third Avenue, are in the process of reinventing themselves, while others, like Columbus Avenue and Broadway on the Upper West Side, were never suited for the rents of $500 or more per square foot that hit the market a few years ago.
She also said the influx of new retail space in places like the Brookfield World Trade Center and the South Street Seaport have also impacted the market.
“There’s a lot more competition for landlords to capture new and exciting retail and there are a lot of choices for retailers to look at,” she said.