NEW YORK — The retail climate looks mighty bleak — tourism is down and stores are closing in Manhattan left and right. But you wouldn’t guess it from the real estate market.

The city’s retail property market is generally holding on — for now. Although vacancies may be up and rents may be softening a touch (particularly in SoHo), the bottom is far from falling out. The allure of a Manhattan address remains seductive for most brands, and as quickly as one store closes, another seems to open elsewhere in the city.

On the toniest of all retail strips — Madison Avenue between 57th and 72nd Streets — a rash of subleasing is going on. Gucci Group recently subleased space from Compagnie Financiere Richemont’s frontage on Madison Avenue between 69th and 70th Streets. The Montblanc, Lancel and Sulka units that previously had stores there will be transformed into a Gucci store, as previously reported in WWD. Jean Paul Gaultier also opened a 2,700-square-foot store at 759 Madison Avenue earlier last month. While Dolce & Gabbana is moving across the street from 816 Madison to 825 later this month.

Real estate executives claim that other big name retailers will stay firmly in place on Madison. While the occasional space may open up within the coming year, rents will remain fairly even.

“On Upper Madison Avenue, space is still generally tight, although we are starting to see some subleasing activity, and I think there will more sublease space coming on the market in the next year as well as direct space as a result of bankruptcies or closures or just normal lease expirations,” said Richard B. Hodos, president of HGCD Retail Services. “But that area is still generally one of the best shopping areas of the world.” “North of 57th Street on Madison Avenue the rents have plateaued,” said Andrew Goldberg, senior managing director, retail group at Insignia/ESG Inc. “Some spaces, the ones that are small stores with good frontage, will still rent at strong market rents. But the stuff that is large, doesn’t have good frontage or is quirky in some way, there you’ll be able to get lower rents. But all in all the market is holding still.”

Market rents on Madison currently average $600 a square foot, although prime spaces with extensive frontage can spike to $800 a foot.

According to Goldberg, retailers on Madison are more resolutely entrenched than retailers in other parts of the city — although even such high-end retailers are suffering from a drop in sales. “Business is definitely off from what I’m hearing from retailers,” said Goldberg. “But as a major international company, which most of these are, you can’t just close up your Madison Avenue flagship because you had a few quarters of bad sales. It has to be a much longer-term commitment.”

“Business is better, but we’re still not back to pre-recession levels,” said Bud Konheim, chief executive officer of Nicole Miller, which operates two stores in New York. “We’re making money, but it’s not like it has gone from zero to 60. It was really bad, now it’s just bad. Our New York stores used to be head and shoulders over the rest of our stores in the country. Now, our Chicago store is outselling our Madison Avenue store.”

While the megabrands on Madison can weather the current storm, many stores in SoHo unfortunately don’t have the same kind of staying power. The downtown neighborhood, once home to artists and galleries, has burgeoned in recent years as big-hitting luxury retailers like Chanel, Cartier, Louis Vuitton and Salvatore Ferragamo opened stores there. “Prior to Sept. 11th, rents for SoHo’s major streets like Prince, Spring and Broadway were inching toward $300 a foot,” said Hodos.

And rents on the prime streets have yet to drop. “Tenants keep checking back to see what’s going on with rents, and I can’t say that I’m finding a big drop in the ask,” said Caroline Banker, executive vice president at Insignia/Douglas Elliman. “The asking rentals have remained fairly constant. However, if there is a seriously interested party ready to come to the table, landlords will reach to make the deal now.”

“SoHo rents were really on a whirlwind pace over the last few years, and now I think that this will bring it back to a more steady growth,” said Goldberg. “There’s never been one market rent down there because traffic varies dramatically from street to street.”

The prime streets of SoHo that command high rents and generate substantial foot traffic are Broadway, Prince, Spring and certain blocks of West Broadway. Most of the remaining secondary north-south streets, like Mercer, Greene and Wooster, have seen rents drop by as much as 20 percent according to Banker.

“Prices that had been $125 a square foot on the other more tertiary side streets are dropping below $100,” she said.

The effects of Sept. 11th — lack of tourism and suffering businesses — are taking a significant toll in other ways. Retailers are closing stores with increasing alacrity — Rene Lezard, Prada Sport, XOXO and Country Road Australia have closed; the Rockport and Charles Jourdan spaces are rumored to be on the market, although Rockport declined to comment and Charles Jourdan could not be reached for comment. A spokesman for Robert Marc, which signed a lease at 436 West Broadway, between Prince and Spring, said that if the climate in SoHo looked good in three months time, then they would go ahead with a store. Shiseido, which took over one of the vacant Agnes B. spaces on Prince Street to move its 5S store into, put it back on the market because it discontinued the line. Despite rumors that Zegna is trying to turn over the lease on the space it took on Prince Street, a spokesman for the company maintains that they are still planning to open a store there. Others like Ralph Lauren Sport “have literally put a wall up half way through the space to downsize the store so they don’t have to stock it with as much inventory,” said Hodos. Cartier opened a boutique at 131 Prince Street last November to showcase a new jewelry line and had at the time planned to turn it into a regular Cartier boutique. Now the space is papered up with a sign that requests customers visit its other New York locations. According to a spokeswoman for Cartier, a final decision as to the store’s future has not yet been made. The company will either turn it into a retail store or use the space as a launch location for new collections or as exhibition space.

XOXO Clothing Co. closed its store at 426 West Broadway last month. Aaron Smith, vice president of marketing for the company, told WWD in January, “Because of the events on Sept. 11, sales have dropped dramatically.” After reviewing its retail strategy, the company will open mall-based stores exclusively in the future.

It’s not all gloom and doom, however. Anne Klein opened a 3,200-square-foot store in the old Rene Lezard space at 417 West Broadway in SoHo. This spring Barneys New York is opening a Co-op store at 116 Wooster Street and Burberry is also opening a store at 133 Spring Street in the next few weeks. Then there are the mammoth flagships opened in the neighborhood by Prada and Tommy Hilfiger. And the outlook remains hopeful.

“In six months we should see a bit of a recovery in SoHo,” said Laura Pomerantz, principal of PBS Realty Advisors. “I know of at least a dozen locations right now in SoHo — sublets that are available or vacant. It’s considerable compared to five months ago when there was hardly anything. As far as rents are concerned, they have softened. But not enough deals have been done to tell by how much exactly. I think people have been holding off making their decisions because they are trying to wait for the recovery so that they open when things are better.”

But the hiccups have given some brands pause as to whether they even need to be down there.

“The buzz about SoHo right now is that the luxury tenants are not doing well,” said Jeffrey C. Paisner, senior managing director, The Lansco Corp., retail leasing. “A lot of tenants in SoHo thought that what they would do is introduce a little bit of lower price-point lines. I don’t believe Louis Vuitton ever planned on selling to the King of Saudi Arabia at their SoHo location. I think those deals were going to be done elsewhere. I think these luxury retailers were finding that they needed to edit their merchandise for SoHo and maybe focus more on their lower price points, on more bridge type lines that would be more attune to a SoHo customer.”

That’s why SoHo is seen as a more volatile retail market than Madison Avenue. What Madison offers that SoHo doesn’t is a higher profile and stronger customer base, say real estate executives. Madison is also more conducive to shopping seven days a week because it’s located near midtown. SoHo wakes up late and business suffers dramatically on weekends if the weather is bad.

“I think that for the time being, if tenants have to choose between SoHo or Madison to spend money and use a window to brand their product, I think they will be a little more receptive to doing that on Madison than SoHo,” said Paisner. “Madison Avenue has a much longer history behind it as a place to display high-price-point, luxury merchandise. SoHo is a neighborhood where people are incubating more fashion-forward types of lines.”

But some, like the owners of Scoop boutiques, which are located on Third Avenue and in SoHo, remain upbeat and committed to their downtown location. “Business for our SoHo store has been above plan,” said Stefani Greenfield, co-owner of the Scoop stores. “The opening of the Prada store and H&M have increased our traffic too. For the past couple of months, we haven’t seen any glitches in our SoHo business.”

Despite the current softness in the SoHo area, executives have no doubt the neighborhood’s hip reputation and clientele will continue to strengthen it as an important retail destination in the years ahead. This is why, in part, realtors still believe SoHo is suffering only for the short term.

“I believe it will take time, but that the area will pick up again because it is an area that has concentrated shopping, restaurants, charm and it has a combination of residential, office and commercial spaces — all things that drive traffic,” said Pomerantz.

Paisner agrees. “I’m bullish on SoHo long term because it has a very special and unique appeal and it’s got transportation infrastructure, hotels, commercial businesses, advertising and modeling agencies and galleries. It’s got the nuts and bolts infrastructure that you need to drive retail business.”

In the interim, industry sources concede that landlords may begin offering discounted rents to existing tenants that are struggling to renew their leases or make their rent payments. As one source said, “They figure they are better off getting some income than none, while they wait for the market to resuscitate.”

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