The Manhattan retail leasing market is still in a corrective period as average asking rents recede and deal-making favors parties willing to be flexible with lease structure, uses, and asking rents for ground floor retail spaces.
As the market’s natural correction continues, the Real Estate Board of New York’s (REBNY) Fall 2017 Manhattan Retail Report shows that per square foot (psf) average asking rents for available ground floor retail spaces fell in 13 of Manhattan’s top 17 shopping corridors, when compared with fall 2016.
According to REBNY’s Manhattan Retail Report Advisory Group, deals are still getting done through shorter-term leases and more flexible terms. The retail brokers who comprise the Advisory Group note that the correction may prove healthy for both the short and long-term viability of the Manhattan retail leasing market. In the near-term, retail owner representatives in REBNY’s Advisory Group say that rent adjustments offer a chance for quality retailers to explore markets that were previously too expensive. Other retail brokers in the Advisory Group add that this is an environment for price discovery in a market that is still learning about the effects of online retailing.
“Across Manhattan’s wide-ranging retail landscape, personal consumption fundamentals and retail demand remain strong as we head into the holiday season,” said John Banks, REBNY President. “Our advisory group sees this period of declining average asking rents as an opportunity for owners and retailers to find a new equilibrium rent level that promotes long-term tenancy.”
HIGHLIGHTS FROM REBNY’S FALL 2017 MANHATTAN RETAIL REPORT
- The most resilient retail corridors in fall 2017 were the Flatiron Fifth Avenue corridor, between 14th and 23rd Streets, where the ground floor retail average asking rent rose 15 percent to $449 psf year-over-year; and the Lower Manhattan Broadway corridor, between Battery Park and Chambers Street, where the average asking rent increased two percent year-over-year to $374 psf.
- Upper Fifth Avenue, between 49th and 59th Streets, as well as East 86th Street, between Lexington and Second Avenue, both saw average asking rents rise this fall compared to last fall. Those corridors had very limited ground floor retail availability, which made market conditions more difficult to discern.
- Bleecker Street, between Seventh Avenue South and Hudson Street, experienced the biggest average asking rent reduction this fall compared to last year: a 25 percent decline to $351 psf. REBNY’s Manhattan Retail Report Advisory Group noted that asking rents in this corridor greatly overshot their viable range due to a lack of weekday foot traffic and being better suited to cater to local neighborhood needs.
- On the Upper West Side, the Advisory Group noted concern for the effect of zoning regulations on ground floor retail spaces. They observed that restrictive zoning limitations to storefront size have cut down the number of viable potential tenants in a market that is already struggling with reduced demand. Fall 2017’s average asking rent of $291 psf on Broadway, between West 72nd Street and West 86th Street, was a 15 percent decrease from last fall. On Columbus Avenue, between West 66th Street and West 79th Street, the average asking rent fell 16 percent to $338 psf compared to last fall.
“This fall, our Manhattan Retail Report Advisory Group observed significant transformations underway in the role that physical retail plays in a company’s overall sales strategy. When demand is low for traditional spaces and long-term leases, an owner can experiment with tenants who are trying new ideas in presenting their retail concepts, brands, and products,” said Brian Klimas, Vice President for Research at REBNY. “Should these ideas eventually become the norm in retailing, our Advisory Group members note that the owner will be in an early and advantageous positon to provide the right space solutions for retail tenants.”
While new, longer-term rent dynamics play out, the retail brokers in REBNY’s Manhattan Retail Report Advisory Group have reported that both retailers and owners have been very flexible participants in the retail leasing market. Tenants have been searching out value in the market and have been more open to side street space near, but not on, the major retail corridors analyzed in our report. In Midtown, the Advisory Group brokers have noticed this strictly from a value perspective, whereas Downtown side streets include a “hipness factor” being located off major corridors and away from the crowds. Areas on Lafayette Street and the side streets of SoHo have experienced this as fashionable streetwear brands have sought out more space in Manhattan.
The Advisory Group also commented that pop-up shops on short-term leases have continued to proliferate around the city with owners being more amenable to flexible deals. However, pop-ups have been facing big challenges when owners are contractually obligated to keep high rent levels due to financing agreements.
REBNY’s Manhattan Retail Report presents data about asking rents provided by a broad cross-section of the City’s leading retail brokers. The report is compiled twice per year in the spring and fall, and analyzes the average, median, and range in asking rents for ground floor space in Manhattan’s premier retail corridors.
Data for the Manhattan Retail Report was provided by REBNY brokers and property owners from the Commercial Brokerage Retail Committee, and comprised of asking rent prices for their current, available ground floor retail listings. REBNY’s Manhattan Retail Report Advisory Group includes: Robin Abrams of Eastern Consolidated, Karen Bellantoni of RKF, Matt Chmielecki of CBRE,Benjamin Fox of SCG Retail, Andrew Goldberg of CBRE, David A. Green of Colliers International, Jordan Kaplan of CBRE, Andrew Mandell of Ripco Real Estate Corporation, Joanne Podell of Cushman & Wakefield, Fred Posniak of Empire State Realty Trust, Jeffrey Roseman of Newmark Knight Frank, Craig Slosberg of Jones Lang LaSalle, and Alan Victor of The Lansco Corporation.
For more information, please visit www.REBNY.com.