In Manhattan real estate, change is the one constant.
That change is working in renters’ favor — ground-floor retail asking rents declined year-over-year in 13 of Manhattan’s 17 high-profile retail corridors, according to the Real Estate Board of New York‘s fall 2017 report.
“The increased rents of previous years are receding,” the REBNY report said ominously. “There are significant transformations under way in the role that physical retail plays in a company’s overall sales strategy.”
In other words, few retailers are opening new stores, and the ones that are — online brands and international nameplates — aren’t rolling out units by the hundreds as Gap and Victoria’s Secret did in the Nineties and Aughts. Of course, both of those retailers have since closed stores in an attempt to right-size their fleets.
“There seems to be a change under way in terms of retail that seems to be pervasive,” said Mike Slattery, senior vice president of research at REBNY. “Retail is in transition. What we’ve been struggling with here, is the same thing the malls are struggling with. It’s not just a New York rent problem.”
“Demand seems to have slowed a bit,” Slattery added. “There’s been a change in the composition of the market. There’s been a decline in apparel. Bars and restaurants seem to be picking up.”
Asked whether new projects such as Hudson Yards and the Seaport District are adding to the pain of property owners in Midtown and other retail districts, Slattery said, “The amount of retail space has been growing. When the retail market started to pick up, people said that created more retail opportunities. New space coming on line as a result of rezonings is a bit of the inventory issue.
“Hudson Yards is attracting retailers looking for other locations,” Slattery continued. “They’re looking for an area they think is going to be a bit of a home run. Are they willing to take a gamble on locations that don’t have a history?”
Bleecker Street, between Seventh Avenue South and Hudson Street, posted the biggest average decline in asking rent in the fall compared to last year, 25 percent to $351 per square foot. The thoroughfare has become the poster child for what happens when an overheated and highly hyped real estate submarket cools off.
“Asking rents in this corridor greatly overshot their viable range,” REBNY said, adding that a lack of weekday foot traffic makes Bleecker Street better suited to retailers that cater to local neighborhood needs. Slattery said, “We saw some people moving from Bleecker Street to the Meatpacking District” in the hope of capturing more customers.
The average asking rent in fall 2017 on Broadway between West 72nd and West 86th Streets was $291 per square foot, a 15 percent decrease from last fall. Average asking rent on Columbus Avenue between West 66th and West 79th Streets fell 16 percent to $338 per square foot versus last fall.
REBNY said that restrictive zoning limitations to storefront size cut down the number of viable potential tenants in a market already struggling with reduced demand.
Madison Avenue, between 57th and 72nd Streets, saw rents decline 6 percent to $1,348 per square foot. East 57th Street, from Fifth Avenue to Park Avenue, once the most expensive retail street in the world, dropped 10 percent to $1,294. Asking rents along the most desirable stretch of Fifth Avenue, between 49th and 59th Streets, jumped 12 percent ahead of last year, to $3,900 per square foot. Meanwhile, asking rents on Fifth Avenue between 42nd and 49th Streets, fell 8 percent to $1,158.
At Herald Square, where Macy’s Inc. has been challenged, and J.C. Penney Co. Inc. is downsizing or closing its Manhattan Mall locations, rents retreated 15 percent to $633 a square foot. Broadway and Seventh Avenue, between 42nd and 49th Streets, experienced a 3 percent decline in asking rents to $2,100 per square foot.
“Macy’s seems to be struggling. They were bringing in other kinds of retailers into their space that could generate foot traffic,” Slattery said, referring to Apple. “People recognizing they need to do things differently to bring people into stores.”
Third Avenue between 60th Street and 72nd Street, plummeted 23 percent to $261 year-over-year since last fall.
“Some downtown side streets have a hipness factor, being located off major corridors and away from the crowds. Areas on Lafayette Street and the side streets of SoHo have experienced this as fashionable streetwear brands have sought out more space in Manhattan,” REBNY said in its report. However, overall asking rents in SoHo dropped 15 percent to $644 per square foot over fall 2016.
The most resilient corridors were the Flatiron Fifth district corridor, between 14th and 23rd Streets, where the ground floor retail average asking rent rose 15 percent to $449 per square foot year-over-year, and the Lower Manhattan Broadway corridor, between Battery Park and Chambers Street, where the average asking rent increased 2 percent year-over-year to $374 per square foot.
Upper Fifth Avenue, between 49th and 59th Streets, as well as East 86th Street, between Lexington and Second Avenue, saw average asking rents increase this fall compared to last fall. The corridors had limited ground floor retail availability.