New York’s retail brokers are quick to tell skeptics, “Remember the banks?”
It wasn’t so long ago that financial firms locked down every prime corner in America to attract new customers.
But as ATMs became wildly successful, the banks needed fewer tellers and less space, merging with each other and giving up locations. Politicians bemoaned empty storefronts but savvy brokers saw these vacancies as opportunity.
“Retail is a cyclical business,” says Adam Flatto, CEO of the Georgetown Company. “Every seven to 10 years, new concepts are created and others are retired.”
These days, as retailers are reluctant to lease new stores, building owners without financiers on their backs have wised up, dropped asking rents, do more work and are providing longer rent-free periods. In some cases, even lenders are recognizing that some rent coming in is better than none.
“Think about the history of our city and the great recessions. Some of them are much more tragic and terrible. That’s why I think 2017 is a transition year,” says Gene Spiegelman, vice chairman of retail at Cushman & Wakefield. “Great space always gets leased.”
At 519 Broadway, Lee & Associates NYC has a 7,500 square foot store available with an asking rent in the $500s per foot. Its Soho neighborhood has seen average asking rents dive from $977 per square foot in 2015.
“That’s a price at which people knock on your door and want to talk to you,” says Peter Braus, managing principal at Lee of the space in the heavily trafficked shopping area. Similarly, in high-density Kips Bay, Lee brokers are seeing demand for spaces where top rents are in the mere $100s per square foot.
Speaking of the big marquee deals, Braus wonders: What did it take to get these done? “We know this now involves a lot of concessions by the owners,” he says.
Both store owners and brands are being cautious. As Jeffrey Roseman, executive vice president of Newmark Knight Frank Retail, says, “There are no reckless deals and no [retailer] is coming in with unlimited funds to open stores. Everyone is more conservative.”
One thing is clear to the industry: A storefront is only one small part of connecting to a consumer.
“The store[front] should not be driving the strategy,” says Susan Kurland, co-head of global retail services at Savills Studley.
Owners are also figuring out ways to incorporate emerging brands into their projects with kiosks and pop-up deals. Mall owners replacing a shuttered anchor store can drive foot traffic with food and entertainment. “It’s a big win for the owner/developer, and gives these malls much more relevance,” says Michael Goldban, senior vice president of retail at Brookfield Property Partners.
Meanwhile, online birthed brands like Warby Parker and Bonobos that have loyal customers, robust Web technology and unique user experiences, have an easier time transitioning into brick-and-mortar stores, Goldban says.
No matter what, it’s now essential for all brands to connect to customers online. “The older brands that own the physical space find it is much harder to learn the digital space,” Goldban adds.
Anyone who walks around New York knows the best shopping streets also act like outdoor malls. The most sucessful brands in Times Square, for instance, generate selfies and Twitterings.
For example, Korean import Line Friends, at 1515 Broadway, counts on fans of its messaging app’s cartoon characters to lure customers and log ins. Every day, 250,000 social media posts are generated from Times Square — and one of the reasons its businesses are so successful, says Brett Herschenfeld, managing director of SL Green Realty Trust, which owns 1515 Broadway.
Area retailers also enjoy extended hours of shopping, millions of tourists and millions in sales. Levi’s — currently at 1501 Broadway — is not only remaining in Times Square, but just leased its next and larger flagship at 1535 Broadway.
Also in Midtown, Kurland represented American Girl in the deal for its new digs at 75 Rockefeller Plaza. Not only does the brand sell its iconic line of dolls there, but the shop also includes a restaurant, a doll hair salon, and the opportunity for visitors to organize brand-themed skating parties at the world-famous rink. “The new store works to engage its customers,” Kurland says.
Another hot area is the stretch along Lafayette Street in Noho between Astor Place and Houston Street. Karen Bellantoni, vice chairman at RKF, says the corridor is “really, really strong,” with buzzy brands like Starbucks, Sweetgreen, and Barry’s Bootcamp. Streetwear brand Kith opened in October at 337 Lafayette by Bond Street. Along with edgy sneakers and sweatshirts, the shop features a café and art gallery. “That store is off the charts,” Roseman adds. “It’s a cool street with a lot of great fashion and cool food.”
Across the river in Brooklyn, food and fitness options are not only doing well but are also seeking additional locations.
TF Cornerstone recently leased a 50,000-square-foot space to Chelsea Piers for a new fitness facility at 33 Bond St., its luxury rental in Downtown Brooklyn. Retail rents are also an affordable $75 per foot.
“We have a couple of deals focused on the residential population,” says Jake Elghanayan, senior vice president of TF Cornerstone. “The neighborhood could use more retail and food.”
In Manhattan, TF Cornerstone is completing construction on a 1,028-unit residential whopper at 606 W. 57th St. by the Hudson River.
Elghanayan says the company is just beginning to look for retailers for the 11th Avenue side of this project near CBS’s studios.
Across town, along prime Madison Avenue blocks, owners are trying to lure tenants while simultaneously setting a high bar to retain the storied stretch’s elegance.
“The couture tenants want to be among those kinds of tenants,” Kurland says, predicting some imminent deal-making.
Despite hand-wringing over high rents, most owners now bargain so it’s a rare prime corner that doesn’t get leased quickly.
Of course, mid-block storefronts and second floors also offer less pricey opportunities for tenants.
In more affordable residential neighborhoods, demand is coming from fitness and yoga spots, day care centers, walk-in urgent care facilities, nail salons, restaurants and food halls.
“Things that serve a neighborhood are leasing,” says Peter Hauspurg, chairman of Eastern Consolidated, who pegs $75 to $250 where deals get done.
Still, large swaths of Third Avenue on the Upper East Side and Columbus and Amsterdam avenues on the Upper West Side are, according to Braus, “in a state of paralysis . . . until the rents come to a more equilibrium level and owners readjust their expectations.”
Braus adds, “Right now, the market needs as much help as it can get.”
