Between New York’s 8.5 million residents and 60 million annual tourists and business visitors, local retail brokers and owners are sloughing off a spate of abysmal retail reports.
But owners are still so concerned they have cut asking rents in over half of Manhattan’s main shopping corridors in an attempt to fill what’s already available.
There are bankruptcies and store closings by Joe Fresh, Sports Authority, City Sports, Fairway, Scoop and Aeropostale. Luxe fashion label Coach is closing some of its outposts, too. Plus, there have been lackluster first-quarter earnings from Macy’s, Kohl’s and Nordstrom. Nevertheless, city brokers still believe most vacant storefronts will be quickly absorbed, provided new lower pricing meets retailer expectations.
“Before you call ‘the end,’ you have the ability to adjust pricing to see how it impacts demand,” explains Gene Spiegelman, vice chairman at Cushman & Wakefield.
That is already happening. According to the Real Estate Board of New York (REBNY), cautious retailers worried by the sluggish economy and global sales performance together with a lot of space has triggered a drop in retail rents in 10 of the top 17 Manhattan corridors.
REBNY President John H. Banks III predicts, “The next 12 months will be a decisive period in which we may see more asking rent price adjustments.”
“It’s a shakeout and it’s survival of the fittest,” declares Adelaide Polsinelli, a principal and managing director at Eastern Consolidated. “The department store is a dying situation.”
Agrees Karen Bellantoni, vice chairman of RKF: “A department store is like a mall; if you don’t have the 50-yard line, you need to be able to reposition.”
Brands like Coach and Michael Kors are rethinking their mall and department store spots and are monitoring or subleasing their own locations.
Even as Coach closes smaller shops, for instance, it leased a 23,400-square-foot flagship at 685 Fifth Ave. for about $4,000 per foot through RKF.
A former City Sports location at 390 Fifth Ave. near Lord & Taylor is already generating interest, too. “It’s all about fitness and fashion,” says Faith Hope Consolo, chairman of Douglas Elliman Retail.
Stores in the Bronx, by contrast, are performing well. They also have lower rents that, even in the best locations, don’t rise above $300 per foot. “Those that have gone out of business did so because of pressure from other stores in the chain,” says Steve Lorenzo, principal at Lee & Associates NYC.
In some areas of Manhattan the vacant stores will also be scooped up, says his colleague, principal Peter Braus. “Anything that would hit the market on Broadway in the Financial District will be taken up pretty quickly because there is a lot of demand,” Braus says. REBNY’s most recent report found that between Battery Park and Chambers Street, asking rents rose 39 percent from $234 per square foot last spring to $326 per foot now, due to demand from new residents and transportation options.
But where there are large inventories, Braus does not see the empties getting absorbed so quickly. “In Soho, it is pouring gasoline on the fire,” Braus said of the Broadway corridor between Houston and Broome streets. That’s where REBNY’s data found asking rents fell 16 percent from $977 to the current $824 per square foot.
Some building owners are still assembling space in certain areas, hoping to make mega deals. “But those deals are few and far between,” Braus says. “It’s a case of submarket by submarket. There are open listings and then there is what could be made available — and that is a fair amount.”
Joe Fresh closed but sublet its prominent 510 Fifth Ave. spot of 20,000 square feet at West 43rd Street to The North Face.
Bleecker Street also became “incredibly expensive,” says Consolo. The REBNY report found that between Seventh Avenue South and Hudson Street, the average asking rent increased to $513 per square foot, up 7 percent from the spring of 2015.
Earlier this year Consolo represented cosmetics brand Orogold in a lease at 333 Bleecker that had an asking rent of $600 per foot, while a Rituals store leased at nearby 337 Bleecker. “If there was availability in the better parts of the street, the rents were unattainable,” she adds. “That’s now changed.”
Ever upbeat, Consolo also sees the increasing availability of locations as “shopportunities.” A few months ago there were worries Starbucks would close locations. “We didn’t see any of that and now they are opening the biggest roastery ever in the Meatpacking District,” she says of the 20,000-square-foot location at the upcoming 61 Ninth Ave.
Consolo also points to previous cycles when banks closed and their corners were grabbed by restaurants and fashion firms. “And when the Gap was consolidating, the banks went back in,” she said.
Now, Braus observes, banks are again downsizing or eliminating non-performing locations.
“We will probably be able to fill those spaces quicker than anyone in the country,” Consolo says. “Somebody falls out; someone else comes in.”
Explains Spiegelman, “We will come to a paradigm where landlords will realize that retailers are looking at a couple of things: they have to be profitable and not every store will be run at a loss.”