By James Wacht, President of Lee & Associates NYC
In the words of Mark Twain, “the reports of my death are greatly exaggerated.” The same can be said about today’s retail landscape. It’s no secret that the changing retail world has worried members of the real estate industry in recent years. However, despite the so-called “retail apocalypse,” the market is still active and deals are being done. In addition, traditional brick-and-mortar retailers have begun to adapt to the new realities of the marketplace and are reporting improved financial results.
Manhattan Retail Activity
Retail leasing activity in Manhattan in the first quarter, while less than it was in the prior year, was still significant. There were 361 retail transactions in Manhattan during the first quarter of 2018, comprising 1,028,147 square feet leased across 333 buildings. This represents only a 15 percent decrease in volume year-over-year. Within our own office, we have seen a significant uptick in retail activity since the beginning of this year. The increase has been fueled by local retailers who recognize that this current market presents a great opportunity for them to lock in long-term leases at affordable rents. Retail activity has also been boosted by property owners that have adjusted their pricing expectations.
Some traditional retailers have adapted and are actually thriving in the current market. My company, Lee & Associates NYC, just represented the landlord, Blackstone Group, for a new Target store at the corner of East 29th Street and Second Avenue. This will be the discount retailer’s eighth small-format store in Manhattan. By reducing their footprint and designing stores to appeal to customers looking for convenient, fill-in trips for items such as beauty products, grab-and-go food options and baby supplies, Target has adjusted to fit the needs of today’s consumer.
The Wall Street Journal recently reported that brands such as Macy’s, Walmart, and Home Depot have reported increased sales as a result of changes they’ve made to their businesses. Recent tax cuts coupled with low unemployment and increasing wages also bode well for strengthening retail.
Change in the Nature of Retail
The retail world is vastly different today than it was even five or ten years ago and it continues to shift. It wasn’t so long ago that apparel tenants ruled the landscape. You couldn’t walk one block without seeing a Gap, Banana Republic, Ann Taylor, H&M, American Apparel, Hollister or Abercrombie & Fitch. Today, these tenants have been replaced by quick service restaurants, urgent care centers and fitness studios.
With the advent of online retailing, consumers no longer need to purchase commodity products such as electronics, books and everday clothing at brick-and-mortar stores. If they go shopping, they are looking for a unique product to Instagram and an exclusive, special in-store experience to document. Experiential retail stores and pop-up shops are two areas where this more specialized approach to retail can be seen.
On the experiential side, Lee & Associates just completed a deal with Alo Yoga in Williamsburg, a neighborhood in which there is continued interest from retailers. The more than 14,000-square-foot space is set to include the brand’s full line of athletic wear as well as an upstairs level that will be used exclusively for yoga classes. A store is no longer just a place to buy items before returning home, it is now an experience.
Successful stores have become social gathering places, venues for exclusive opportunities that can’t always be replicated at home and platforms for social media content. At the Vans flagship location in Williamsburg, customers can design personalized shoes via the in-store studio. An installation at the store’s entrance tells new product stories using a range of methods and materials and is changed out each month. At its first retail location, Inked Magazine hosts famous tattoo artists for residencies and there is a photo studio in the back of the space. These features are all in addition to the regular merchandise which customers can purchase.
Pop-up shops are also a prime example of the shifting nature of retail and the importance of social media to the industry. Brands appreciate the chance to test out the actual numbers of customers they would attract in a particular location before having to commit long term. From the customer’s point of view, these stores are limited time offers for an exclusive experience. Pop-up shops play into the idea of the “drop” culture in which limited or even one-time-only releases of products or entire lines create extreme buzz around a brand, often causing items to sell out within minutes. Recently, Lee NYC arranged the lease for a pop-up location of Baldwin Denim in Nolita, which has now become a permanent store in that location. Similarly, the firm brought a Uniqlo pop-up shop to Williamsburg for the holiday season, which the Japanese retailer later decided to extend for a full year.
Last year, Lee & Associates won the exclusive retail agency for what has been called a next generation model within commercial real estate. At 25 Kent Avenue in Williamsburg (pictured top) brands can house their retail, office and production space all under one roof. This type of arrangement provides both retailers and customers with what they feel is a modern, special experience.
In summary, retail is not dead. It is going through a transformation which is changing the way in which stores conduct business. Those retailers that adapt to the new realities will flourish. Likewise, those property owners who adjust their pricing expectations will be able to attract these retailers and rent their vacant spaces.