New York City retail owners, tenants and brokers are being stymied in their negotiations as they try to find rents acceptable to both sides.
One issue is that retailers are having problems projecting how their in-store sales will stack up to their rents, which have become a moving target.
“The rules are changing from both the landlord’s and tenant’s point of view,” says Robin Abrams, vice chairman of Eastern Consolidated. “There is more flexibility on the landlord’s side and more creative deal-making on the tenant’s side.”
Tenants paying more want to pony up less. So those with current leases are questioning their prior decisions and asking for rent breaks. “Everybody wants to meet and ask for a reduction,” says Faith Hope Consolo, chairman of retail for Douglas Elliman. “It’s widespread today,” agrees Patrick Smith, vice chairman of JLL, which has an entire group focused on such bargaining all over the country.
Brokers say deals actually getting signed are mainly smaller leases or restaurants in corridors where rents are already “reasonable.” There is a continuing demand for such club and bar space in the Times Square area, too. But Victor Menkin, founder and president of Menkin Realty Services, warns that to survive, “The operators must create a sense of individuality in design, theme, concept and the dining/entertainment experience.”
Meanwhile, apparel is facing a very bad spell. “These are tough times in retail,” says Jason Pruger, executive managing director of Newmark Knight Frank Retail. “And in tough times, the middle gets crushed, while the value retailer does OK.”
Retailers such as the décor store Pirch at 200 Lafayette St. and outposts of Nine West, Teavana, True Religion and more than a dozen other brands have closed underperforming (or all of) their stores in the city and beyond.
Even Ralph Lauren shuttered its Polo store at 711 Fifth Ave. in Midtown. While the company tries to sublease the space through Cushman & Wakefield, it also wants to keep its successful Polo Bar open, located around the corner on East 55th Street.
“You can walk up and down some of the avenues and see there is a fair amount of retail vacancies,” says Richard Kessler, COO of Benenson Capital Partners, a property owner.
Retailers can make money, however, in some residential neighborhoods. Take near the giant housing complex LeFrak City, in Corona, Queens, where rents are about $50 per foot, which is relatively low and “approaching a residential rent,” according to Jamie LeFrak of its owner, the LeFrak Organization. “Retail rents throughout New York are in a state of free fall and can’t seem to find a clearing price.”
Fifth Avenue and Times Square retailers had been paying $2,000 to $6,000 per foot, but now, all bets are off.
“There is still business, but the rents are off,” says Joanne Podell, vice chairman of Cushman & Wakefield, who represented Nike in its massive transaction to rent seven floors over 69,214 square feet at 650 Fifth Ave. One of the priciest ever for New York, the 15-year-lease was signed in the fall of 2016 with a starting ground floor rent of $4,000 per foot and adds up to a combined $700 million over the 15-year term. Granted, it is a prime location on the corner of West 52nd Street. “There is a lot of availability, so for tenants that want to grow, this is a great time,” Podell says.
Another area that is still strong is the Lower East Side, adds Peter Braus, managing principal of Lee & Associates NYC. “Rents didn’t get out of hand, there is an active and strong population and it’s a destination,” he says.
Similarly, Long Island City has seen rent growth because deals can be made in the under $50- to $100-per-foot range. “The type of retail it needs — and is leasing — is health and wellness, food, and nail salons that you can’t easily replace with Amazon,” says Braus.
There are also many more smaller retailers in the market. That’s one reason Benenson Capital divided a large space it owns at 127 E. 59th St. Over the summer, it leased 13,000 square feet to Muji, a Japanese home-goods, clothing and stationery company still expanding in New York.
Kessler’s broker, Jeffrey Roseman, executive vice president of Newmark Knight Frank, holds that fair leases are getting signed that ensure tenants can make their rents. “It’s not reckless like it used to be,” he adds.
Hipper tenants and some foreign concepts are also doing well, says Podell.
Korean retailer Åland, for instance, repped by Cushman & Wakefield, chose 92 North Sixth St. in Williamsburg to lease its first US store. The asking rent was $205 per square foot, and the owners’ broker was Lee & Associates.
Line Friends is another cute import from Asia, based on a Japanese text messaging app with distinct animated characters. Its new store at 1515 Broadway in Times Square attracts customers.
Tenants still looking for locations include Alo Yoga — expanding from Santa Monica and Beverly Hills — plus click-to-brick retailers like Untuckit, a men’s shirt maker, and eyewear disrupter Warby Parker, along with sneaker staples Puma and Asics. Warby Parker, for instance, recently leased the former Rockefeller Center location of Nine West at 1258 Sixth Ave.
Temporary or so-called pop-up stores, leased for short terms with options to extend, are good indicators for the market, says Smith. Startup Untuckit, for one, began as a pop-up in Soho at 129 Prince St. before extending its lease there and looking at other locations.
In 2008, retail was affected by the overall downturn in the economy. But now even with a strong stock market, retail is struggling in some areas. Says Smith, “This feels like a seismic shift.”
