Fifth Avenue has been synonymous with wealth since the Gilded Age when families with names such as Vanderbilt, Astor, Frick and Clay built fortunes and mansions on the street, which was dubbed Millionaire Row. Over the decades, the money settled between 49th and 59th Streets, where the moniker stuck as millionaires, or at least, the rich, shopped at luxury retailers such as Bergdorf Goodman, Saks Fifth Avenue, Louis Vuitton, Van Cleef & Arpels, and Cartier.
While the avenue became a template for other luxury retail streets in the U.S. and around the world, Fifth Avenue hasn’t been quite as posh in recent years. The average asking rent on the 10 prime blocks declined 22 percent in spring 2019 to $3,047 a square foot, from $3,900 a square foot the previous spring, according to a report by the Real Estate Board of New York. The decrease was due to high availability and low absorption rates as tenants balked at high asking rents, which diminished demand.
While Madison Avenue between 57th and 72nd Streets has been similarly challenged with vacant storefronts and a decline in asking rents — a 25 percent drop for the corridor in spring 2019 compared to spring 2018, according to REBNY — the thoroughfare has seen an uptick in with the recent high-profile store openings of Celine and Balenciaga.
“Despite instances of rent reductions, newer owners who purchased Fifth Avenue real estate at peak market rates have been slow to adjust their [asking rent] and are struggling to fill vacant spaces,” REBNY said in its report. “Similarly, average asking rent on Fifth Avenue, between 42nd and 49th Streets, dropped for the third consecutive year-over-year period to $878 per square foot, a 20 percent decrease from $1,053 per square foot in spring 2018.”
“The challenge on Fifth Avenue is not dissimilar to some of the other retail corridors where rents have now declined, but there’s a dearth of potential players willing to step up, even at those reduced rents,” said Stephen Stephanou, principal at Crown Realty Services. “There will be something, or the [landlords] will have to reconfigure the spaces.”
Stephanou said after the closure of the two Topshop locations on Fifth Avenue and Broadway, landlord Vornado Realty Trust was loathe to lose another major tenant. Vornado shortened the lease of Forever 21, which filed for Chapter 11 bankruptcy protection, and cut the retailer’s rent at 40 West 14th Street to less than half the original rent. “Whole Foods is taking part of the space,” Stephanou said. “There isn’t another player in the city that can step up, even for half the rent. That’s very telling.”
Another veteran retail real estate broker, who requested anonymity, when asked where the market for Fifth Avenue is headed today, said, “At the moment there is no market on Fifth Avenue, because there’s no demand for Fifth Avenue.”
“Retailers have been approaching deals with caution because they believe that rents haven’t hit bottom yet,” the broker said. “Also, it’s the brand mix. It’s not all luxury tenants. Victoria’s Secret is struggling and has enormous rent to pay.”
While Madison Avenue is also grappling with empty storefronts, the amount of available space or space leased on a temporary basis on Fifth Avenue is daunting, and includes Furla, 645 Fifth Avenue; Ermenegildo Zegna, 663 Fifth Avenue; Tissot, 656 Fifth Avenue; Blanc De Chine, 673 Fifth Avenue; Stuart Weitzman, No. 675; Tommy Hilfiger, 681; Gap Inc., 680; Massimo Dutti and MAC Cosmetics, 689-691; Polo Ralph Lauren, 711; Henri Bendel, 712; Abercrombie & Fitch, 720; Cartier, 767; Angelo Galasso, 786, and Domenico Vacca, 781.
In an effort to stop the bleeding and reverse the storied street’s fortunes, the Fifth Avenue Association, the thoroughfare’s business improvement district, earlier this month hired a new president, Jerome Barth, who expressed a sense of urgency in a recent interview.
“Fifth Avenue is amazing and has great assets and tremendous cultural forces such as the Museum of Modern Art, St. Patrick’s Cathedral, which is a beacon, and Central Park. It has all these things, but there’s never been an articulation of how you can link them together,” Barth said. “We have great merchants telling their stories, but we aren’t really telling the stories of the area. The BID recognized that it was time to do that. We have all of our assets and an engaged board devoting significant resources to this.
“What we’ve seen is that the luxury customer is ever more sophisticated and looking for more of an experience, and that shopping alone doesn’t interest people the way it might have,” said Barth. “Retail centers and other urban areas are changing with much more of a focus on hospitality and food and experiences.”
Joanne Podell, vice chairman of Cushman & Wakefield U.S., said, “Right now, the street doesn’t look good because it’s not well-tenanted. Some of the stores that closed may be relevant, but weren’t relevant on Fifth Avenue. Karen Millen has been closing all stores and will just sell online. Polo Ralph Lauren may have been too populist. In some cases, it was because of the rent, but not in all cases.
“A lot of the stores are much too big,” Podell added. “They’re monsters. That’s a problem, too. Stores have gotten smaller because of e-commerce. You definitely have stores closing because they’re not doing well, but they’re not doing well anywhere. Topshop is closing all of its stores [in the U.S.]. This is an indication that brands are struggling.”
Podell noted that Mikimoto relocated next to Bulgari in the Crown Building on the southwest corner of 57th Street. “There are stores that have opened,” she said. “Not only did Nike open, but so did Adidas, Puma, Asics, and Under Armour is opening a store in the space next to Apple. Zegna moved from 730 Fifth Avenue to 4 West 57th Street. Ralph Lauren’s building was bought, but he’s on the hook for the rent.”
Lauren’s lease, which expires in 2029, is on the sublet market. The designer must pay $27.5 million for the next five years, and $30 million for the five after that.
“Very few deals have been done on Fifth Avenue in the last couple of years,” Podell acknowledged. “Landlords are now adjusting rents. Maybe they thought they would get the numbers they were getting in the past, but unfortunately, they can’t.”
“Fifth Avenue is still relevant as a commercial retail destination, but the way people relate to stores has changed and is still evolving,” said Lisa Rosenthal, a retail broker at Compass. “While retail is still an incredibly important vehicle for sales, stores are becoming showrooms. You need stores to promote brands and let people understand and know what you stand for and display some merchandise. Stores don’t need to be as big as they were anymore. Unfortunately, it was kind of a perfect storm when some of these leases were signed at the high end of the market.”
GGP and Wharton Properties’ acquisition of 730 Fifth Avenue at the height of the market, at the time, broke the record for the price per square foot for an entire building. Retail tenant Bulgari in 2015 signed a lease believed to be in excess of $5,000 a square foot, a well-above-market rent. According to real estate brokers, the lease terms were said to go some way toward justifying the $1.8 billion price tag of the Crown Building.
Property owners are still paying top dollar for Fifth Avenue real estate. Lauren’s flagship sits vacant at the base of 711 Fifth Avenue, which Nightingale in August acquired for $909 million from Coca-Coca. The following month, 711 Fifth Avenue had a new owner, Michael Shvo, who with associates paid $937 million to Nightingale. Shvo will have to make the numbers work, which will impact future leases at 711 Fifth Avenue.
“The business has to make sense, and for many brands it does make sense, and they’re doing well,” Barth said. “What luxury is, and what it means, is changing. Brands that are mixing fashion and technology like Nike, Puma and Adidas are across the street from high-end jewelers like Cartier. It’s not rare that the same consumer shops both types of retailer. The avenue is transforming to meet the needs of the new luxury consumer.
“Apple, Saks Fifth Avenue, Bergdorf Goodman, all the jewelers, Victoria’s Secret and Sephora — I believe each of these properties are very important to their owners and they’re looking at different scenarios. I do believe where the tenant has the occasion to rethink the property, that some owners are doing renovation work. Owners are interested in finding the right partners for these spaces and there might be more room for conversations than two years ago.
“If your store is vacant, you’re not getting income. I can’t think of one real estate person who would prefer not getting rent over getting rent,” Barth said. “They’re making sure their assets will be performing.
“People understand that with an environment like Fifth Avenue, there’s such a limited opportunity to be there. Each tenant changes the mix so slightly, so if one isn’t right, it’s not going to taste as well. We’ve done a good job kicking out the souvenir shops and going-out-of-business stores. We want the best of the best in luxury retail and lifestyle and hospitality, and that takes a little longer.”
Some Fifth Avenue retailers are casting a vote for the thoroughfare. Saks Fifth Avenue, Tiffany & Co. and Apple, among others, have made or plan to make significant investments in their stores on the avenue.
Saks has made progress on the $250 million grand renovation of its Fifth Avenue flagship, including the main floor, which was completed in August; vertical transportation designed by Rem Koolhaus; The Vault, dedicated to high fine jewelry and watches; L’Avenue restaurant; a new men’s shoe floor, and Beauty on two.
Tiffany & Co. is also planning to spend as much as $250 million on revamping its iconic 10-story flagship on Fifth Avenue at 57th Street, which was revealed last year. The brand has said it will take three years to complete the facelift.
Under construction for almost three years, Apple in September unveiled its reimagined flagship at 767 Fifth Avenue. Nearly double the original’s 32,000 square feet, the vast store sits beneath a renowned luminous glass cube, which rises above a newly designed public plaza.
“What remains a constant is the tremendous volume of business you can do on Fifth Avenue. That’s especially true for luxury brands,” Barth said. “They have a tremendous understanding of Fifth Avenue. Any one retailer might have their own situation and it might be related to their brand and have nothing to do with the specifics of Fifth Avenue.”
Barth pointed out that robust trends in tourism bode well for Fifth Avenue. According to NYC & Co., 2019 will be a record year, with 68 million visitors. “Despite the strong dollar, we remained the number-one destination in the world,” Barth said. “It’s a testament to New York itself and the quality of the cultural offerings and the work of talents on the international stage. New York keeps innovating and we want Fifth Avenue to become part of that trend.”
Asked whether new retail offerings at The Shops and Restaurants at Hudson Yards, and Nordstrom’s new flagship on West 57th Street will siphon shoppers from Fifth Avenue, Barth said, “My feeling is that the business is not a set pie, it always grows. We need to find ways to entertain and bring back all the new aggregate visitors, so they make multiple trips. There are rich offerings citywide. Competition is healthy, but not at the expense of another area.”
A high-end hotel, Aman at Crown, and luxury condos at 685 Fifth Avenue to be operated by Mandarin Oriental Hotel Group are in the works, according to Barth, who said, “That’s always going to help. We’re seeing how we can use place-making by taking very high-quality public space, of course in a much more linear, pedestrian environment. We have the beauty of this historic architecture.”