By  on August 10, 2005

NEW YORK — Hennes & Mauritz is said to be closing in on a space on lower Fifth Avenue in the Flatiron District.

The store, at 111 Fifth Avenue and 18th Street, is occupied by Daffy's. It's being marketed by Robert K. Futterman Associates as having 40,000 square feet of space on three levels.

"We are actively looking in that neighborhood, but as of now, no lease has been signed," said an H&M spokeswoman.

If H&M signs the lease, it will be the company's eighth store in New York City. Other locations are at 640 Fifth Avenue at 51st Street, 515 Broadway and 558 Broadway in SoHo, 731 Lexington Avenue, 34th Street at Herald Square, 34th Street and Seventh Avenue and 125 West 125th Street.

European retailers such as Zara and Mexx are giving H&M some heated competition in a market where prices are low and margins are slim. H&M, with the lowest prices of the group, needs to do major volume to be profitable.

Sources said rents in the Flatiron District range from $175 a square foot to just over $200 a square foot for very small spaces.

After raising its image by signing designers such as Karl Lagerfeld and Stella McCartney to create collections, H&M is in an expansion mode. Sources said H&M is also close to signing a lease on Newbury and Clarendon Streets in Boston. The space has 7,000 to 9,000 square feet on the ground floor and 15,000 to 20,000 square feet on the second and third floors.

Daffy's is not looking to leave 111 Fifth Avenue, its first New York location, which opened 20 years ago. "We negotiated with the landlord and he believes he can get more for the property than we are willing to pay," said Gary L. Breitbart, chief operating officer. "The offer we put in front of the landlord isn't going to satisfy him. If we close, we'll seek alternatives. We have great customers in the area. It's a pretty robust corridor."

Lower Fifth Avenue has grown increasingly strong as a fashion destination. Esprit opened a store there a year ago. Coach, Arden B., Searle, Sephora and A/X Armani Exchange also have a presence on Fifth Avenue."Lower Fifth Avenue is becoming a place where brands are converging," said Jeffrey Paisner, executive managing director of Lansco. "That doesn't mean it's not appropriate space for Scoop or Intermixx. They're selling fashion and sophistication. Lower Fifth was never a discount place."

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