In the NYC retail world, investors are still betting on the outer boroughs, as demand for Manhattan retail hits a fever pitch.
According to Marcus & Millichap’s second quarter 2018 retail report, the strong presence of major companies in NYC is fueling the demand for more housing and more retail, especially in the emerging Hudson Yards neighborhood.
Construction has picked up the pace, as retail developers are focusing primarily on Manhattan. The Shops & Restaurants at Hudson Yards is expected to open later this year, as well as new developments at Pier 57 on the Hudson River and Empire Outlets on the north shore of Staten Island.
On the investment side, deal flow and dollar volume have been on the decline across NYC, especially in Manhattan and Brooklyn, according to the report, as institutional transactions have slowed down significantly.
The bright spots have been the higher relative returns found in Queens, the Bronx, and Staten Island, which are still drawing considerable interest from buyers.
In the Queens market in particular, there was a 25.7 percent increase in the average retail asking rents year-over-year, a significant increase that the report attributed to Northwest and Northeast Queens “broadly” outperforming the market due to extremely tight vacancy and retailer demand.
Construction completed in Queens hit 525,000 s/f year-over-year, more than doubling the amount completed from 170,000 s/f from the previous year. Additionally, the borough has 660,000 s/f of retail underway, with a 225,000 s/f mixed-use project on College Point Boulevard in Flushing representing the largest of the offerings.
Manhattan was not far behind Queens in construction production, with 410,000 s/f of retail completed year-over-year, the vast majority of which was in Lower Manhattan and Midtown.
Brooklyn, which had expected 920,000 s/f completed over the last year, instead completed just 215,000 s/f year-over-year. The rest of the year will see smaller projects finished, primarily in North Brooklyn, with an average building size of 20,000 s/f.
In comparison, year-over-year, Manhattan retail asking rents increased 3.5 percent, Brooklyn retail asking rents decreased 2.4 percent, and the Bronx retail asking rents increased 2.7 percent.
Midtown South was the submarket that saw the tightest conditions in Manhattan, experiencing an increase of 24.3 percent in asking rents year-over-year, with overall vacancy at 3.3 percent.
The submarket with the highest vacancy was Lower Manhattan, according to the report, which listed the neighborhood as having a 6.5 percent vacancy rate, a 34.5 percent decrease year-over-year, 240 point basis change.