NEW YORK — The overheated Manhattan real estate market of the last few years, characterized by few vacancies and heady rents that went in one direction only – up – has hit a speed bump.
The impact of the slowing global economy combined with cautious retailers and a rising supply of space has triggered adjustments in asking rents in 10 of the 17 top Manhattan retail corridors, according to the Real Estate Board of New York’s spring 2016 report.
“Demand for retail real estate in New York City remains fundamentally strong, but it’s starting to feel the effects from the recent slowdown in the national and global marketplace,” said John H. Banks III, REBNY president.
The slowdown in global retail growth has led to less competition for space and more availability. “While there are retailers looking at potential stores to lease, the velocity of tenants committing to new leases has slowed and deals are taking longer to complete,” the report said.
Some retailers are taking a wait-and-see approach with the idea that asking rents may adjust from the historic highs of 2015.
Asking rents in SoHo on Broadway between Houston and Broome Streets declined 16 percent, from $977 a square foot to $824 a square foot. In the Herald Square vicinity on West 34th Street between Fifth Avenue and Seventh Avenue, asking rents declined 11 percent, from $1,000 to $890 a square foot.
Madison Avenue continued to struggle with issues of supply as the luxury retail market slowed and exclusive brands delayed leasing new space. Both prestigious higher-priced spaces have come onto the market along with stores at the lower end of the price spectrum, which resulted in a lower average asking price for the corridor. The asking rent for ground floor space along Madison Avenue between 57th and 72nd Streets declined 3 percent, to $1,613 a square foot from $1,644 a square foot in spring 2015.
On the Upper West Side, asking rents on Broadway fell 8 percent to $359 a square foot, from $390 a square foot, while Columbus Avenue asking rents declined 9 percent, to $405 a square foot from $447 a square foot.
Several retail neighborhoods bucked the downward trend, including Bleecker Street between Seventh Avenue South and Hudson Street, where asking rents increased 7 percent to $513 from $481 last spring.
The Financial District corridor on Broadway between Battery Park and Chambers Street saw asking rents increase 39 percent to $326 a square foot from $234 a square foot in spring 2015.
One of the biggest changes, according to REBNY’s Manhattan Retail Advisory Group, which reviewed the data, is that emerging brands are being more cautious with available capital. “It appears that retailers have determined that the present period of slowing retail demand presents a challenge if they were to make a major branding push to increase their visibility. The retail property owners that are adjusting asking rents seem to be those who have had space on the market for an extended period of time.”
The next 12 months will be a pivotal period for the Manhattan retail real estate market. If sluggish retail sales continue and retail jobs decline, the supply of available retail space is expected to increase. Property owners would have to make a decision about how flexible to be in terms of rents. These changes could occur gradually and any downward shift in asking or taking rents should be phased in over time, the report said.