NEW YORK — Retailing in lower Manhattan is gaining promise and getting pricier.
With sweeping transformation hitting the area, lower Manhattan asking rents soared 37.8 percent in the second quarter this year over the same period last year, faster than any other section of the borough, Cushman & Wakefield reported Monday.
The commercial real estate services firm examined 10 Manhattan neighborhoods and concluded that lower Manhattan’s asking rents, in percent increases, stand “head and shoulders above the rest.” Average asking rents for ground-floor space in lower Manhattan averaged $346 a square foot in the second quarter of 2014, compared to $251 in the same quarter a year ago.
The area’s vacancy rate stood at 6.4 percent compared to 9.1 percent in the year-ago period.
“This central business district is the fourth-largest in the country and it’s under-retailed,” Cushman & Wakefield vice chairman Joanne Podell told WWD. “It’s a rediscovered market. Broadway is the best corridor for street retail. There’s very little availability and rents are skyrocketing.”
Cushman & Wakefield defines lower Manhattan as extending from Chambers Street to the southern tip of the island.
More specifically in lower Manhattan, CBRE Group Inc., the commercial real estate services and investment firm, reported that downtown Broadway saw the largest year-over-year average asking rent increase, rising by 22.03 percent to $277 a square foot in the second quarter of this year, from $227 in the year-ago period. CBRE defines downtown Broadway as stretching from Battery Park to Chambers Street.
“In that whole area, we are seeing a rebirth of development unlike anything we have seen before,” said Andrew Goldberg, vice chairman of retail services, CBRE Group. “There’s roughly a million square feet of retail coming on line between Westfield World Trade Center, Brookfield Place, Fulton Transit Hub and the South Street Seaport and developments along Broadway. There are also all of these new state-of-the-art modern office buildings coming on line. It’s very rare that you see all of this new product hitting the market at the same time.”
The area will be flooded with additional office workers in the coming months, with Condé Nast relocating to One World Trade Center, Time Inc. moving into Brookfield Place, and GroupM entering Three World Trade Center. The U.S. Army Corps of Engineers, U.S. Customs and Border Protection, China Center and KiDS Creative are also moving into One World Trade Center.
Visitors to the area are on the rise, with 14 million people expected annually in the coming years. That’s way up from the four million visitors in 2002, the year following the Sept. 11 terrorist attacks on the World Trade Center, according to published statistics from the Downtown Alliance.
Retailers are waking up to the metamorphosis and the potential of the area, which has long lacked sufficient shopping alternatives, and are beginning to grab up space.
For lower Manhattan, Cushman & Wakefield’s statistics include Broadway, Fulton and Wall Streets and do not include any data from Brookfield Place, Westfield World Trade Center or the Fulton Transit Hub retail complex.
Brookfield Place, formerly known as the World Financial Center, is undergoing a $250 million redevelopment, reconfiguring its 250,000 square feet of retail space and its restaurant components. Saks Fifth Avenue is in advanced negotiations to open a full-line store there; it would be Saks’ second store in the city. Hermès, Salvatore Ferragamo, Ermenegildo Zegna, Theory, Scoop, Michael Kors, Bonobos, Equinox, Diane von Furstenberg, Judith & Charles and Calypso have already signed leases. A total of 40 stores are expected. Also being planned is a dining terrace of upscale casual eateries and a European-style marketplace similar to Eataly, which is on Fifth Avenue between 23rd and 24th Streets. The centerpiece of Brookfield Place is the 10-story Winter Garden glass pavilion for public events, shops and restaurants and the waterfront esplanade.
Also downtown, Saks wants to open an Off 5th outlet close to Century 21 and the Westfield World Trade Center, just east of Vesey Street. It would be the first Saks Off 5th in New York City.
Westfield, with about 365,000 square feet for retailers, has been in discussions with many designers and brands that could open stores in the World Trade Center mall but has yet to disclose any tenants. It is believed to be in late-stage talks with Giorgio Armani, Tom Ford and Tiffany & Co. The mall is not being configured for a major anchor tenant.
The South Street Seaport is undergoing a redevelopment and will be seeking to attract a higher grade of retailing.
The move by Saks to Brookfield Place only solidifies the perception of lower Manhattan as a growing mecca for luxury. In 2017, Barneys New York will open a 57,000-square-foot store at Seventh Avenue and 16th Street, its old stomping grounds. That will give Barneys a second major Manhattan location, just like Saks will have once it opens in Brookfield Place.
Bloomingdale’s already has two locations in Manhattan — its flagship on 59th Street and Lexington Avenue, and its specialty concept on Broadway in SoHo. Bloomingdale’s has at times examined the West Side for another store, including Hudson Yards, but for now at least has no plans for a third Manhattan site. Macy’s, too, has at times considered another location in Manhattan, uptown and downtown.
Real estate sources believe Hudson Yards, built atop the rail yards near the Hudson River, between 30th and 33rd Streets and 10th Avenue and the West Side Highway, could be the next part of town to see such major transformation. Neiman Marcus is negotiating to move into Hudson Yards, and could reveal a deal soon.
In its report Monday, Cushman & Wakefield indicated that Times Square had the second-highest rate of asking rent increase — 13.8 percent. Third on the list was Madison Avenue, up 12.4 percent, followed by the 10.7 percent increase in the Flatiron District.
“We expect downtown to keep attracting retail as office employment rises,” Podell said. “In addition, retail rents along the Fifth Avenue corridor have been increasing steadily, underscoring that market’s long-term strength.”
Lower Manhattan’s vacancy rate decline was the sharpest of the 10 neighborhoods, falling 2.7 percentage points. Coming in second was lower Fifth Avenue, where vacancies charted 1.6 percentage points lower, followed by unchanged levels in Times Square, and an increase of 0.4 percent on Third Avenue. Fifth Avenue, Madison Avenue, the Meatpacking District, SoHo, the Upper West Side and Herald Square-34th Street were also part of the Cushman & Wakefield research.