NEW YORK — The holiday shopping season may be hit-and-miss so far, but real estate executives are bullish about 2016 and beyond.
From Manhattan to Mexico City and elsewhere, developers are plotting projects and seeing demand in ways they haven’t seen in some time. That fed to a sense of guarded optimism at the International Council of Shopping Center’s New York Dealmaking conference on Monday and Tuesday at the Jacob Javits Center here.
Property owners are feeling positive enough to expand existing projects with a focus mainly on urban markets. The Prudential Center in Boston is building a new 17-floor tower at 888 Boylston Street, with retail at the base, while the Mall of America in Bloomington, Minn., plans to create a luxury wing called The Collection. Joseph Chetrit, the real estate mogul who paid $1.1 billion for the Sony building at 550 Madison Avenue, is planning to convert all or part of the trophy tower to luxury condominiums with new retail space at the base.
Brokers said that landlords in Manhattan are softening their stance on rents a bit. “There seems to be more interest in making deals in New York,” one broker said.
For the last year or two, retailers have been balking at the astronomical asking rents on several key shopping streets in Manhattan. Although the two sides aren’t in agreement yet, several brokers said landlords and owners seem more willing to start a dialogue.
“Madison Avenue can be depressing between 52nd Street and 72nd Street,” said Robert Cohen, vice chairman of Robert K. Futterman Assoc., referring to the raft of stores with “For Rent” signs and visibly fewer shoppers. “There’s more foot traffic above 72nd Street.”
Cohen said the absence of Brazilian and Russian customers in New York is “a big hit for the luxury guys.” Consumers leaving the Upper East Side and shopping in other neighborhoods is also impacting Madison Avenue.
“With all the luxury business migrating to SoHo, it’s really hurt Madison Avenue. But it hasn’t hurt Fifth Avenue,” Cohen said, noting that rents on lower Madison Avenue range from $1,500 a square foot to $2,000 a square foot.
Most retailers would be happy to have Fifth Avenue’s traffic outside their doors. Bottega Veneta, however, felt that the street’s increasingly middle-market mix was no longer exclusive enough. The luxury brand moved to a temporary location on Madison Avenue until its permanent maison is ready in 2017. Another luxury brand, Chanel, seemingly has no problem with Fifth Avenue’s demographics. “Chanel still wants to be on Fifth Avenue,” said a broker, who added that “Chanel is looking for a space on Fifth Avenue.”
Joseph Sitt, chairman and chief executive officer of Thor Equities, said that retailers are choosing SoHo over lower Manhattan. “SoHo is a mall by itself,” he said. “Greene Street is the hottest. Number two is Mercer Street. Everybody wants the side streets.” Sitt sees demand for Greene Streets and Mercer Streets pushing the boundaries of sought-after blocks south to Canal Street and north to Houston Street. Asking rents in SoHo start at $300 a square foot and go to $1,000 to $1,200 a square foot for the most desirable blocks.
“In New York we’re witnessing some pullback, which is related to real estate values being out of whack,” said Anthony Buono, executive managing director, real estate services for the Americas at CBRE. “Retailers are being more careful and waiting” before they sign leases.
That may be due in part to a more focused approach on the part of retailers that combines analytics and science. “It used to be that retailers based decisions on their gut instincts. Now there’s really robust scientific thinking about where to take their brands. Landlords, however, are behind the curve,” said Buono.
As for outside New York, Christopher Wilson, executive vice president, retail brokerage lead, Southwestern region for JLL, said spaces on Rodeo Drive, Beverly Drive and Wilshire Boulevard in Beverly Hills, also known as the Golden Triangle, “are trading at record highs.”
Rodeo Drive, where Bally will open and Giorgio Armani is headed, has gotten so expensive many leases require key money, Wilson said, adding that Robertson Boulevard is due for a revival and Melrose Avenue is shifting from home furnishings to fashion. As proof of the high price of Rodeo, Chanel reportedly just paid $152 million, or more than $13,000 a square foot, for its store on the street.
Big-box retailers have been trying to squeeze into downtown urban areas with smaller boxes. Target’s 35,000-square-foot prototype is being used to fill in the area between two full-size Target units. Petco has a new smaller concept called Unleashed and Kohl’s is introducing a 35,000-square-foot store for different types of trade areas and a 25,000-square-foot to 35,000-square-foot Off-Aisle off-price store design.
Besides the 14 or so gateway cities that most retailers target, Buono said there’s a deep list of secondary markets that are quite viable. “Detroit, Pittsburgh, Cleveland, Oahu, the Bishop Arts District in Dallas, are some of the cities,” he said. “There’s a whole revolution going on there in retail.”
Some American brands are looking South of the Border for growth. Eduardo Carneiro, senior director of finance and franchise development at Swiss Parrot GMBH, represents Chico’s in Mexico, where the brand has opened 40 stores through partner Liverpool since entering the country 18 months ago. “The 40 stores are shop-in-shops and boutiques,” Carneiro said. “Liverpool has 100 department stores in Mexico. I don’t know if we can position Chico’s in all of them, but we’re going to continue to expand in Mexico.
“We’ve done well in Latin America,” Caneiro added. “There are more opportunities. There aren’t a lot of choices for women there.”
Caneiro said there’s a pipeline of five to seven stores in Mexico.
“Argentina has all the ingredients to be a great country for retail development,” said Andrea A. Abrams, principal of Time Retail Partners. “In Argentina there’s a European customer that appreciates fine apparel. Venezuela also has all of the ingredients.”
Alfredo Cohen Kohn operates shopping centers in Venezuela, in Margherita, Paraguana and Valencia. The formula includes a strong entertainment component. “We do community weddings, fashion shows, music events, chess tournaments and Zumba,” he said. “It’s shopping and entertainment centers. The incomes are low, but they spend more on shopping than in the U.S.”
Kohn built a shopping center in the Dominican Republic three years ago, opened one in Curacao this year and is planning to open a center in Puerto Rico in 2018. The center in Madrid is being renovated. Kohn said he’s talking to the Spanish department store El Corte Ingles about entering the Madrid center.