Under pressure to fill empty storefronts, building owners are now more open to cutting rents to creative retailers with less credit.
That means giving shorter terms in the hopes the retailer does well and extends the lease, providing more cash toward a build-out and handing out longer stretches of free rent.
According to a new semiannual report from the Real Estate Board of New York, retail rents along 11 of Manhattan’s 17 shopping corridors continued their swoon, but the lower rents are prompting more dealmaking.
“Our report found an increase in short-term lease activity, which often leads to longer-term contracts, while owners’ flexibility with incentives and rent negotiations have created new opportunities for retailers,” says REBNY President James Whelan.
Owners are also being courted by retailers that are coming up with unique experiences to showcase both pop-ups and longer-term stores. These stores are also targeted to enhance retailers’ online and branding efforts.
REBNY says some new uses for stores include restaurants used as daytime co-working spaces, as well as bookstores that have installed cafés.
Madison Avenue, however, is the biggest loser, with rents dropping 22%, to $906 per square foot, from $1,160 last fall in the stretch between East 57th and East 72nd streets. The all-time high rent was $1,446 per square foot in the spring of 2017.
Smaller storefronts and the ending of many leases have contributed to the lowering of rents. There is also a trend for luxe retailers to cluster closer to East 57th Street, where there is more business and tourist traffic, rather than along the quieter residential area around East 72nd Street, where Ralph Lauren still perches. The Barneys bankruptcy has also worried retailers afraid of losing those shoppers.
Another area where rents are dropping by double digits is along Broadway in Soho between Houston and Broome streets. Here average asking rents took a 12% slide year-over-year, to $491 per square foot. Its high was $821 per square foot in the spring of 2017.
Pop-ups and digital brands going from clicks to bricks have been the saving graces for both this area and along Bleecker Street, but brokers say longer-term deals with more traditional retailers are in the works at these bargain rents.