The Real Estate Board of New York (REBNY), the City’s leading real estate trade association, today reported that asking retail rents throughout Manhattan have declined in 16 of the 17 reported corridors, as the market continues to adjust more than a year after the COVID-19 pandemic first hit New York City.
According to REBNY’s Spring 2021 Manhattan Retail Report (attached), average asking price per square foot (PPSF) rents throughout Manhattan’s retail corridors fell by as much as 37% year-over-year. Corridors located in neighborhoods with strong residential bases typically have seen less of a decline than those dependent on tourists and office workers. For example, the average asking rent in the Upper East Side has declined 15% since Spring 2019, compared to the Madison Ave and Fifth Ave corridors which experienced declines of more than 25% during the same time period.
The new findings suggest that the current market – with increased availability and reduced leasing costs – presents unique opportunities for both tenants and owners alike. At the same time, the data also indicates the importance of ensuring that office workers return to their workplaces and the City do more to attract tourists back to New York to generate foot traffic that supports retail businesses.
This trend is not specific to the Manhattan retail market. REBNY’s Winter 2021 Brooklyn Retail Report shows that 12 of the 17 Brooklyn retail corridors saw declines in average asking rents from Winter 2020 to Winter 2021 ranging from 5% to 48%. However, industry leaders reported seeing an increase in retail leasing activity in the Q4 2020 and Q1 2021, highlighting how retail tenants are taking advantage of the opportunities presented in the current market.
“The retail market’s adjustments over the past year provide new windows of opportunity for the industry, from introducing new retailers to the market to the use of creative lease agreements and rent concessions,” said REBNY President James Whelan. “Now as COVID-19 restrictions ease and the City comes back to life, there is a real sense of optimism that we will see an accelerating recovery throughout the retail market in the coming months.”
With declining rents comes new opportunities. This is why retail industry leaders have reported rising interest and demand from retail tenants and commercial brokers have shown surging confidence in the market’s recovery, according to REBNY’s Q1 2021 Broker Confidence Index, as COVID-19 restrictions ease as a result of New York hitting the 70% vaccination threshold.
“The retail market is entering a very exciting time after a long, unexpected pause,” said Jeffrey Roseman, Vice Chairman at Newmark Knight Frank Retail. “The combination of favorable leasing rates, a host of creative new retailers and restaurants, and a true pent-up demand for people to go out and shop will bode very well for New York City’s retail market.”
“Deal activity has picked up substantially with local, national and global tenants, all understanding that this is great time to lock in favorable lease terms,” said Robin Abrams, Vice Chairman at Compass.
“Over the past year-plus, local tenants were able to ‘trade up’ and lease larger or better space in their neighborhoods at lower rents or similar space at reduced costs. Brands with existing brick and mortar stores as well as digitally native brands were motivated to lease space at attractive rents with more creative and flexible deal terms. Some property owners embraced a number of deals in a manner that encouraged tenants to commit. These incentives included flexible lease terms encompassing short term leases, many with extensions, or in lesser cases, long term deals with some potential to exit with some penalty, and/or tied to sales performance. Owners also considered lower starting rents, often coupled with percentage rents, with bumps or step ups in rent to protect them in future years. These less rigid deal structures allow tenants to test the market and minimize risk.”
REBNY’S Biannual Manhattan Retail Report is a joint effort by the REBNY Manhattan Retail Advisory Group and the REBNY team. The report provides a snapshot of major retail corridors in the borough based on available ground-floor retail asking rent information. All data is sourced from the respective firms of each REBNY Manhattan Retail Advisory Group member. The report includes the average price per square foot, median price per square, the lowest price per square foot and highest price per square foot for each of the 17 retail corridors tracked.