By Tarez Eisen
Photograph by Roy Gumpel
With some neighborhood vacancy rates having risen as high as 16.4 percent earlier this year, there are rumors circulating saying Manhattan has turned its retail corridors into tumbleweed-and-dusty-trail streets.
Susan Kurland, an executive vice president in retail services at CB Richard Ellis, for one, does not believe it. New York, she says, is “not going to turn into a ghost town. People want to be here.”
In quarterly retail reports prepared by Prudential Douglas Elliman’s retail leasing and sales division, notable retail transactions in Manhattan are outlined to show the retail climate. More than 30 properties were listed in the fall report alone, showing no real “ghosting” of the streets and proving, even in a scaled-back size, that Kurland is right, and people do indeed want to be in New York. Listed properties included Nordstrom Rack in the former Virgin Megastore at One Union Square South on East 14th Street, Hervé Léger at 804 Madison Avenue, and Brooks Brothers at 51st Street.
The 16.4 percent vacancy estimate was recorded around June, though by September it had dropped to around 12.2 percent, according to the fall Prudential report, which predicts that the city’s average rate will reach 9 to 10 percent by year’s end. Still others, like the New York Times, reported an average of 6.5 percent vacancy around June and a number close to 10 percent by the middle of 2010, according to Marcus and Millichap.
But while the retail areas may not seem like complete ghost streets, vacancy rates in some neighborhoods are seeing hefty numbers—15.1 percent on Madison Avenue and 15.3 percent on Fifth Avenue from the north side of 42nd Street to the south side of 72nd Street. Soho is averaging vacancies of 10.53 percent. “Some areas are very, very strong, and some are not,” says Alan Victor, executive vice president of Lansco, a New York-based real estate firm. He lists Broadway between Houston and Canal streets as very active, but admits there are “greater vacancies” on West Broadway and some side streets in Soho.
“There are areas that have been hurt,” says Victor. “But I’m looking at this as a very positive correction to a market that got inflated.” Inflated rental rates reached highs in 2008, according to Marketbeat, an annual retail report released by Cushman and Wakefield at the end of 2008. According to the report, “Throughout the first three quarters of 2008, the Manhattan retail real estate market reached record highs in asking rents. The Upper Fifth Avenue corridor had an average asking rent of $2,500 per square foot and average rents on Madison Avenue between 57th Street and 72nd Street were above $1,100 per square foot.”
Current rental rates, as of 2Q09, range anywhere between $2,000 per square foot per year on Fifth Avenue (from the north side of 42nd Street to the south side of 49th Street) to $745 per square foot on Madison (Southside of 57th Street to the south side of 72nd Street) and $237 per square foot in Soho (West Houston to Grand Streets and West Broadway to Broadway), according to statistics from Cushman and Wakefield. And some real estate industry experts, like Robert K. Futterman, chairman and CEO of Robert K. Futterman and Associates, a retail leasing, investment sales, and consulting services firm, have seen some neighborhood rates drop by nearly 50 percent.
However, according to Global Retail MarketView, a study completed by CB Richard Ellis, New York still has the highest retail rental values in the world, followed by Hong Kong. Rents seemingly must stay at such high rates because New York is still considered by many to be the retail capital, no matter what economic conditions there are. “New York is still vibrant with foot traffic and tourism,” says Futterman. “Demographics are very strong, and it’s still a place where most retailers do the most business in the country.”
Ultimately, how New York retail is doing depends on interpretation of the numbers. To some, Soho is booming, while others find that the vacancies there overshadow its positive growth. But examining historical statistics on Soho proves that this high point in a low economy really isn’t that far off from just four years ago. According to data compiled by Cushman and Wakefield, Soho—from West Houston to Grand Streets and West Broadway to Broadway—had an availability rate in 4Q04 of 12.4 percent, 11.4 percent in 1Q05 and 9.9 percent in as recent as 1Q08. The current rate of 10.53 percent doesn’t seem that high comparably.
On the flipside, when looking at the rates of highly trafficked, traditional retail neighborhoods, as opposed to previous years’ rates, there is some worry that New York’s once pounding heart is now almost flatlining. However, says Kurland, although Madison Avenue in the upper 60s may not look like the Madison Avenue everyone knows and associates with Manhattan retail, that does not mean that New York as a whole has stopped thriving. “There are submarkets that are doing well,” says Kurland. “Maybe Madison has no movement, but Times Square does.” And so do areas in Soho and around Columbus Circle, according to Futterman.
Madison may look vacant because fashion, long the hallmark of the corridor, is as Futterman says “the biggest segment of the market that’s been hurt.” He says that’s why big vacancies seem bigger than usual and “a lot of fashion companies have put the brakes on, in terms of expanding.”
But moderately priced “fast fashion” is booming. “Because this is what people are spending money on,” says Futterman, “People aren’t spending as much on luxury goods, and that’s why places like Madison Avenue have been hurt.” Futterman lists Forever 21, Nordstrom Rack, and Urban Outfitters as stores that are doing well as fast-fashion retailers.
Joanne Podell, executive director-retail services with Cushman and Wakefield also remains optimistic about where activity is in Manhattan. With a recent notable deal with TD Bank on 53rd and Third, Podell says that with improvements, rents will rise and streets will evolve to work into this new landscape. One example is the area of West 34th Street. Here, she says, in an area with historic vacancies, retailers like Esprit, Aeropostale, and Geox have all recently moved in and leased space.
New York retail is also in a “unique conundrum,” says Luigi Rosabianca, principal attorney at real estate law firm Rosabianca and Associates, poised to fix itself with little loss and so much more to gain. While there is little activity on the streets, Rosabianca says, there is still a great feeling that New York is ready to have retailers who want to expand in the long-term. “If you can find yourself into a lucrative lease for a nice storefront location, this is the time to do so. But to do so, you better make certain you have very strong shoulders,” says Rosabianca “You have to get through the next year or so, if not more.”
The other retail brokers who were interviewed also seem to feel that all is not lost when it comes to New York’s retail market. Lansco’s Alan Victor says his company is currently looking to move a lot of European retailers into New York. Retailers in Europe know and appreciate the New York market, and they understand that the low rents available here right now are not likely to be seen again in the near future. And Susan Kurland of CB Richard Ellis says the high-vacancy situation is one that should be taken advantage of before things begin to change—which is likely to take place in second quarter 2010, by her estimates. “If you’re a good company with a solid, strategic business plan in moving forward, this is a wonderful time to take advantage of the current environment,” she says.
Increased cooperation between landlords and retailers is also likely to change the game. “Landlords should be anxious to make deals,” says Futterman. “The world has changed, and landlords have to be a little more sensitive to tenants’ needs. Landlords are going to have to provide more tenant improvement dollars, be ready to give longer leases and make deals more flexible.”
Kurland sees this period as a time for learning and understanding that rates available last year are not going to cut it today. “Two years ago, when you were getting multiple offers for each property, it was sort of like nothing was ever enough. Today you have reasonableness on both sides of the table,” she says.
Of course, it’s impossible to know what will happen to New York retail two years hence. But if you ask around, it’s apparent that optimism is marking the outlooks of individuals in major firms. “I think that New York is still the greatest retail city in the world,” says Futterman. “And this is where you’re always going to see new things, new fashion, new markets develop, new parts of town become trendy and hot. People are here to spend money, and you’re probably going to spend more here than anywhere else.”
