In the last year, dropping retail rents have motivated big brands to seek storefronts — which are now less expensive — along the city’s prime shopping strips.
“Rents have stabilized and it’s a flight to quality,” says Ariel Schuster of RKF. “Anything with good frontage and high ceilings and light will lease, but those spaces with low ceiling heights and bad facades remain.”
These new leases and rents are more sustainable and will help tenants stay in business longer, adds Steven Soutendijk of Cushman & Wakefield.
“Everyone is coming to the table and being collaborative to make deals,” notes Nicole Liebman of Hudson. “Every neighborhood has opportunities.”
There is still reverse sticker shock for some building owners, who are having trouble coming to grips with the dynamics of the current rental market. “The ones who have are making things happen and signing deals,” says Peter Braus of Lee & Associates NYC. “The smart tenants are, by and large, quietly out there making deals. Everyone likes to talk about the ‘retail apocalypse,’ but the reality is that tenants are seeing the value [as owners drop rents and offer concessions] and making smart transactions.”
On the Upper East Side, where owners and tenants are transitioning from older leases, a Morton Williams supermarket has opened in the former Talbots space at 1251 Third Ave. near East 72nd Street. At the base of the Fairfax rental, at 1201 Third Ave. and East 70th Street, Target has signed for what was formerly Gracious Home. This Target will be one of its new small-format stores, with goods curated for the area.
“It will make a significant impact,” says Andrew Mandell of Ripco Real Estate, who worked on the Target transaction.
At 147 E. 86th St. on the northeast corner of Lexington Avenue, Old Navy signed for its first Upper East Side store at the base of another new tower represented by Mandell. He adds, “86th Street is a special corridor on top of a subway, and it is always a destination for retail on the Upper East Side.”
A Starbucks is also relocating one block from what is now a development site on East 78th Street. David Firestein of the Shopping Center Group found the coffee company a 2,037-square-foot space to sublease from TD Bank at 1091 Lexington Ave. near 77th Street. Furniture and design store Homenature has leased 1033 Lexington at 74th Street, represented by an RKF team. “This filled in a store vacated by the kid’s retailer Giggle that was a large vacancy,” says RKF’s Gary Alterman.
While the Upper East Side is booming in some spots, hopes for a Second Avenue revival haven’t yet materialized. “The subway has made a difference, but the retailers that are backfilling [empty storefronts] are more local businesses and restaurants and fewer chain stores,” Mandell explains.
New Yorkers are still fascinated by Chick-fil-A, which signed a 12,000-square-foot deal near Bloomingdale’s for a former Modell’s at 711 Lexington. The fast-food joint also found a 6,575-square-foot nest at 700 Sixth Ave., in the base of the Caroline, a rental between 22nd and 23rd streets.
In some neighborhoods, like the Flatiron District, there isn’t much space available. Meanwhile, in others, dealmaking is cranking up after months of indecision.
“Over the last four or five months we have seen a thaw — it’s demand, it’s retailers making deals, and demand in districts like Soho, which hasn’t seen demand for a long time,” says Joshua Strauss of RKF.
Soho has a significant number of storefronts. So it may look like there are many vacancies, but behind the scenes, parties are closing in on deals. Wooster Street alone has one block with 40 stores, Cushman & Wakefield’s Soutendijk says, while Prince Street has 30 stores. “The fundamentals are still good,” he adds.
The Real Estate Board of New York’s spring 2017 report found average asking rents of $812 per square foot along the Broadway corridor from Houston to Broome streets. In line with broker chatter, its new spring 2018 report found average asking rents of $595 a foot.
That marks a 27 percent decline from last spring, and it’s 8 percent less than last fall. The figures show the dip in retail rents has continued.
Leasing along Broadway has been in the doldrums as the lenders on more recently purchased high-priced buildings have tried to stick to higher rents. But other thoroughfares are experiencing a “Soho shuffle” as retailers swap stores.
Earlier this month, a new Gucci store opened at 63 Wooster St., while Hermès will open in July at 63 Greene St. Michael Kors has leased 90 Prince, while its tenant, Moncler, is moving across the street to No. 99, which earlier housed J. Crew.
In another move, women’s fashion brand AYR went from pop-up to permanent at 199 Lafayette, proving the “clicks-to-bricks” model is working. “They had tested the market, stayed longer and just signed a long-term deal and renovated the store,” says Peter Whitenack of RKF.
Woolen shoemaker Allbirds has a pop-up at 68 Prince St. and also signed a permanent lease for a 2,500-square-foot space at 73 Spring St. This space had housed the card store Papyrus, which moved down the street and opened at 65 Spring St.
“A lot of activity is focused in Soho,” says Robin Abrams of Eastern Consolidated. “There are long- and short-term deals and pop-ups. I see a lot of new tenants coming.”
Retailers “are a bit like sheep,” explains one broker, who requested anonymity. “They get timid. But when you tour with them and point to the new tenants in the market, they get excited.”
Also in Soho, MacKenzie-Childs, a quirky home furnishings store, is moving downtown to 5,770 square feet at 165 Spring St. It is being displaced from its perch on West 57th Street by an upcoming development.
Also on West 57th Street, the former Lee’s Art Shop at No. 218 is hosting a Downton Abbey exhibit until Sept. 3 and will then transform into DreamWorks Trolls The Experience. “My kid freaked out about it,” says RKF’s Strauss, who represented the tenant. “It will be very cool. How many kids would like to do a ‘Trolls’ birthday?”
Opry City Stage is one new entertainment venue around Times Square.
Strauss also represented 1604 Broadway, where Opry City Stage, a Grand Ole Opry-themed restaurant and event space, opened last November. He also brought the upcoming Lionsgate Entertainment City to the base of 11 Times Square.
Back downtown, Noho is getting an influx of fitness tenants that take advantage of the anchor created by snazzy Equinox at Zero Bond, which opened in 2016.
Wall Street, too, is surrounded by buzz. “There are major names looking at Lower Broadway,” teases Jason Pruger of Newmark Knight Frank, who is representing 150 Broadway. Tenants are also looking at space at 23 Wall St. and 1 Wall St. At the base of the latter, on the corner of Broadway, a soon-to-open Whole Foods will provide another area destination.
