Manhattan retail rents have slid into their deepest and longest slump in 17 years, a new report confirms — with Soho rents slashed by more than a third since their 2015 peak.
In what some have dubbed a “retail apocalypse,” rents have skidded for two years throughout most of Manhattan’s shopping districts, as a massive shift to online shopping has tanked demand for pricey storefronts, according to a new report from the Real Estate Board of New York.
“The high rents of previous years are receding despite owners’ efforts to maintain rent levels through shorter-term leases and more generous concessions,” REBNY said. “Deals are still getting done, but they favor parties willing to be flexible with deal structure, uses, and asking rent adjustments.”
Bleecker Street between Seventh Avenue South and Hudson Street suffered the steepest average decline in annual asking rent compared to last year: a 25-percent drop to $351 per square foot. The luxury retailers that flocked to this Greenwich Village locale a decade ago when rents were low have now moved elsewhere.
“The brokers really thought the rents overshot the neighborhood,” said REBNY’s chief research economist, Brian Klimas.
Since the spring of 2007, REBNY statistics show at least one corridor has landed in negative territory in any given season, but the new report now shows 13 of the 17 are asking lower rents.
Two of the priciest areas have been hit the hardest. In Soho, storefronts along Broadway from Broome to Houston maxed out with an annual asking rent of $977 per square foot in the spring of 2015 and is now pegged at $644 per foot — a whopping 34 percent drop.
Madison Avenue’s highest average rent between East 57th and East 72nd Streets was $1,709 per foot in the fall of 2014 and is now $1,348 per foot — a 27-percent slide and a 7-percent drop from this spring’s $1,446 per foot.
That area of Madison also now has the broadest range of asking rents — from $520 to $2,135 per foot — as some owners tried harder to make deals and certain blocks are simply less valuable than others.
“Madison is one of the corridors where [rents] are higher at the southern end,” added Mike Slattery, REBNY’s vice president.
Fifth Avenue shines
Surprisingly, Fifth Avenue’s Gold Coast between 49th and 60th Streets now enjoys its highest average ask at $3,900 per foot as most storefronts are now leased. The most prominent availability there is the former Polo Ralph Lauren store that is now sifting offers through Gene Spiegelman at Cushman & Wakefield.
In fact, Cushman & Wakefield just reported that stretch of Fifth Avenue is the most expensive of all the “High Street” retail around the world with a June average of $3,000 per foot and up 20 percent over the last five years. Worldwide, Hong Kong’s Causeway Bay and London’s Bond Street are Nos. 2 and 3.
REBNY pegged the previous Fifth Avenue peak in spring 2015 at an average of $3,683 per foot. The highest rent achieved was in December 2015 at $5,500 per foot for Bulgari’s prime, southwest corner lease at Jeff Sutton’s Crown Building at West 57th Street and Fifth Avenue.
A separate report by CBRE earlier this month found that since the average rent peak in 2014, overall Manhattan asking rents had fallen by almost a quarter — 23 percent.
Prior but shorter downturns occurred in the spring and fall of 2009 when 10 corridors were lower, and continued into spring 2010 with eleven down — all a result of the fiscal crisis.
Another slump occurred in the spring of 2014 when nine areas briefly lowered asking rents in response to the soft economy.
Yet tenants are still pouncing on the most coveted locations when building owners can meet their bottom-line needs by providing work on the premises and longer free-rent periods.
The stores that are successful — like American Girl that opened this month in new digs at 75 Rockefeller Plaza — are also providing the “experiential retail” that makes shoppers feel special.
This fall, only three nabes eked out positive rent growth. These were all along Broadway: in Lower Manhattan, in the Flatiron District and in Times Square.
Third Avenue looks for ‘a purpose’
On the Third Avenue corridor from East 60th to East 72nd streets, rents dropped 27 percent to $261 per foot from this spring’s $356, and are down 23 percent since last fall’s $340 per foot.
Brokers believe Third Avenue is still trying to find “a purpose,” Gene Spiegelman, vice chairman of retail with Cushman & Wakefield, said. “The national soft goods brands are not seeking spaces there, so there has to be a reconsideration as to the tenant mix.”
In Soho, Broadway’s asking rents between Houston and Broome Street were down 21 percent to $644 per foot since the spring’s uptick to $812 per foot, but were still down 15 percent year from last fall’s $755 per foot. This comes as luxury tenants fled to the side streets, leaving Broadway to nationals that are still wary of spending too much on new storefronts.
In Herald Square, the stretch of West 34th Street from Fifth to Seventh Avenue has seen rents drop by 14 percent to $633 per foot since the spring when pricing was $734 per foot; and is 15 percent off the $745 per foot asked just one year ago.
Across town on the Upper West Side, REBNY’s retail broker Advisory Group was bummed about the area’s new restrictive zoning limitations on the size of storefronts. “[They] have cut down the number of viable potential tenants in a market already struggling with reduced demand,” the report observed.
Along Broadway from West 72nd to 86th Street, rents are down 15 percent from a year ago and 8 percent since spring to an average of $291 per foot. Similarly, along Columbus Avenue from West 66th to 79th Street, rents were down 16 percent from the fall of 2016, and another 2 percent since this spring to $338 per foot.
On the positive side, asking rents along Broadway in the Flatiron District between 14th and 23rd Streets turned positive: up 10 percent to $384 per foot from spring’s $348 per foot but is still down 2 percent from last fall’s $390 per foot.
Its parallel Fifth Avenue corridor, however, turned negative with rents dipping 1 percent to $449 per foot after a 15 percent rise a year ago to $456 per foot. “The brokers were still upbeat about this area,” said Klimas.
Levi’s deal in Times Square
Another positive-turning ‘hood was Times Square along Broadway and Seventh Ave. where rents jumped 9 percent to $2,100 per foot since last spring’s $1,930 per foot but are still down 3 percent from the $2,170 per foot reached one year ago.
Long selling hours that can stretch to midnight, spectacular LED signage and plenty of feet on the street help Times Square remain a desirable global location. Case in point: Levi’s just inked a deal to move its flagship from 1501 Broadway to larger digs a block away at 1535 Broadway where it will include more of the experiences today’s shoppers crave.
The Lower Manhattan corridor along Broadway’s run from Chambers Street to Battery Park also held its charm for retailers as demand and low supply propped up rents by 3 percent to $374 per foot from this past spring’s $362 per foot, and are up 2 percent from $369 a year ago.
As for those worrying about online sales reducing storefronts, the newer trend has been for online-only retailers to open physical storefronts. Klimas said, “Research shows when online stores open brick and mortar locations, it increases their online sales.”
Additionally, brokers are hopeful the profusion of short term “pop-up” deals trying out storefronts and neighborhoods will translate to long term leases.
“They are putting toes in with a pop up,” explained Slattery, REBNY’s vice president. But Slattery warned, “The owners have to do longer terms to get the return on their capital investments.”
