In spring 2019, average asking rents for available ground floor retail spaces decreased year-over-year in 12 of the 17 Manhattan corridors analyzed by the Real Estate Board of New York (REBNY) in its bi-annual Manhattan Retail Report.
As rents continue to correct, REBNY’s Manhattan Retail Report Advisory Group has observed increased deal-making with tenants committing to space in key areas for both new and existing product.
Amid rising consumer spending, income growth and employment, Manhattan’s top retail corridors continue to experience declining rent values with heightened availability rates.
“Manhattan’s continued natural correction in retail rents is spurring deal-making across the borough’s top corridors as retailers reconsider new and existing ground floor spaces,” said John H. Banks, REBNY President.
“Our Manhattan Retail Report Advisory Group members have seen declining rents fostering a healthier leasing environment as more space is being absorbed at a more affordable rate than seen in recent years.”
In more recent periods, asking rent depreciation has slowed causing rents in several corridors to level off as transaction volumes increase.
Continuing 2018 trends, Manhattan retail leases in the first months of 2019 were driven by the food and beverage industry, followed by activewear, cosmetics and technology brands.
The REBNY Manhattan Retail Report Advisory Group remains optimistic on the market observing increasing interest from new retailers entering the market, retailers previously deterred by high prices, and retailers looking to move to emerging neighborhoods.
Retail leasing activity among e-commerce and digitally native brands are highlighting the importance of brick-and-mortar locations as distribution hubs for products and a physical extension of their marketing presence.
the report found that in Midtown on Fifth Avenue, between 49th and 59th Streets, the average asking rent declined 22 percent from $3,900 psf in spring 2018 to $3,047 psf in spring 2019.
This decline is attributed to both historically high availability rates and low absorption rates, as high asking rents are diminishing tenant demand.
Despite instances of rent reductions, newer owners who purchased spaces at peak market rates are slow to adjust their prices and are struggling to fill vacant spaces.
Similarly, on Fifth Avenue, between 42nd and 49th Streets, the average asking rent dropped for the third consecutive year-over-year period to $878 psf, a 20 percent decrease compared to spring 2018.
The average asking rent in the Upper East Side on Madison Avenue, between the 57th and 72nd Streets, declined by 25 percent to $1,039 price per square foot (psf) compared to spring 2018.
Out of the 17 observed corridors, Madison Avenue represented the largest year-over-year decline. According to REBNY’s Manhattan Retail Report Advisory Group, high availability rates along the corridor have led owners to continue lowering their rents and offer more short-term lease agreements.
Flagship retailers across the strip are taking advantage of the softening rents by either locking in long-term lease agreements, moving to smaller-sized spaces, or migrating further south.
On the Upper East Side’s 86th Street, between Lexington Avenue and Second Avenue, the average asking rents declined nine percent to $365 psf compared to spring 2018.
This drop was due to more expensive retail spaces along Lexington Avenue being recently leased out by Old Navy and JP Morgan Chase with remaining availabilities along the corridor being located further eastwards where rents tend to be lower.
On the Upper West Side’s Columbus Avenue, between 66th and 79th Streets, the average asking rent declined eight percent year-over-year to $279 psf.
This represented the third consecutive year-over-year decline in rents along this corridor.
Likewise, the average asking rent for Broadway, along 72nd and 86th Streets, dropped 16 percent from $325 psf in spring 2018 to $273 psf in spring 2019. Both corridors continue to undergo price corrections that have been ongoing since 2015.
In SoHo on Broadway, between Houston Street and Broome Street, the average asking rent declined nine percent from $595 psf to $544 psf year-over-year.
While asking rents in this corridor softened for the second consecutive year-over-year period, this decrease was much smaller.
Adjusted asking rents have incentivized deal-making by various tenants including pop-up shops, digitally native brands, and retailers such as H&M, Brandy Melville, and The North Face.
In the Meatpacking District on 14th Street, between 9th Avenue and 10th Avenue, the average asking rent decreased 12 percent to $277 psf compared to spring 2018. Tourists, daytime workers, and nearby residents flock to the corridor for attractions such as The High Line, Google’s corporate campus, Chelsea Market, and Gansevoort Row.
With this high foot traffic, 14th Street is viewed as the prime location for “experiential retail” concepts that cater to customer experiences, pop-up shops, fashion, and food and beverage stores.
The REBNY Advisory Group includes Robin Abrams, Compass; Karen Bellantoni, RKF; Matt Chmielecki and Jordan Kaplan, CBRE; David A. Green, Colliers; Andrew Mandell, Ripco; Joanne Podell, Cushman & Wakefield; Fred Posniak, Empire State Realty Trust; and Jeffrey Roseman, Craig Slosberg and NKF.