NORTHEAST SNAPSHOT, APRIL 2007
New York City Retail Market
With retail rents at an all-time high, a population that could increase by another 900,000 people over the next 25 years and development of every kind occurring all over the metropolitan area, New York City’s retail market is set to continue on an upward course in 2007.
This year will see new development in areas that were previously underserved, particularly in the boroughs with a focus on Long Island City, Queens and Brooklyn, with the Bronx being the next frontier to be taken advantage of. In Downtown and Harlem in Manhattan, which both have increasing populations but are under retailed, retailers are scrambling to answer the call for more commercial options. Significant redevelopment is occurring Downtown, as well as the construction of residential towers with retail space at the base. A new 24/7 neighborhood is being created, which will bring more vibrancy to an area that traditionally was a ghost town after business hours. Whole Foods, Barnes & Noble and Bed Bath & Beyond have committed to space at 270 Greenwich and national chains are leasing the limited available space on Broadway. Luxury brands like Hermes, Tiffany, Thomas Pink and Canali have leased showcase stores at Broad and Wall streets near the New York Stock Exchange.
In Harlem, The Home Depot, Target, Costco and other large users are committing to space as well as other national chains. These big-box retailers are beginning to understand that 125th Street is a heavily trafficked shopping street where they can do significant business.
The West Village and the Meatpacking district have surprised brokers with fashion tenants, luxury brands and hot restaurants leasing space at record rents. Space on Bleecker Street that rented for $100 to $200 per square foot 2 years ago now commands between $350 to $500 per square foot. Asking rents on 14th Street are now up to $250 per square foot as well.
Developers used to give little thought to the physical space reserved for retail use at the base of their projects. However, now with retail values high, they are paying more attention to this space by building high ceilings, incorporating minimal columns and creating good visibility with glass storefronts.
Commercial condos are hot with record prices being paid for this kind of product. Both investors and users are seeking to buy commercial condos at the base of both office and residential buildings. With record high rents being paid for retail space, users in particular are attracted to commercial condos as a means to lock in their space long term and control their costs. Investors find these investments lucrative as rents are projected to increase in many emerging areas, and often their ability to lock in a credit tenant makes these very safe investments.
Construction is occurring all over the city with two new residential buildings going up on East 86th Street. Barnes & Noble, Sephora and H&M have secured space in one of them already. Over on the Upper West Side, Extell is developing two towers on Broadway at 99th Street. Also on the Upper West Side, there are few new projects on Amsterdam in the 60’s and 70’s.
In addition to Extell, Vornado is developing in a significant way, especially in the Penn Plaza District near Madison Square Garden and Penn Station. Boymelgreen has made a noteworthy investment Downtown and in other areas, and Forest City Ratner has contributed several new developments to the real estate market such the New York Times Building across from the Port Authority Bus Station and the $4 billion Atlantic Yards mixed-use project underway in Brooklyn. Thor Equities is also planning a $2 billion makeover in Coney Island.
Several new retailers have opened first time locations in New York City. Japanese retailer Uniqlo has leased 51,000 square feet at 546 Broadway in SoHo. Spanish retailer Mango and the United Kingdom-based company Reiss as well as several international fashion tenants, luxury brands and jewelry tenants have also emerged on the scene.
These new tenants are entering the market and paying rents that are at an all-time high. Rents in the city vary depending on the neighborhood, with rents in Downtown on Broad Street or Broadway ranging from $150 to $250 per square foot. Over on Bleecker Street, rents have soared to $350 to $500 per square foot for small boutique space on the few sought after blocks. In SoHo, rents are ranging from $150 to $340 per square foot depending on the street with Prince and Spring streets the strongest. Rents on 34th Street and in Times Square range from $250 to $400 per square foot for high-profile spaces, and rents in the Upper West Side and Upper East Side range from $150 to $350 per square foot, depending on the avenue, size of space, physical attributes of the space and strength of location. Like rental rates, vacancy rates vary greatly depending on the neighborhood and are minimal in prime locations and higher for secondary areas frequented by local tenants.
The retail market in Manhattan and the other boroughs is thriving due to the large number of people working and living there. There is a lot of new construction with more being planned, and areas traditionally geared toward manufacturing and entertainment are now being rezoned for residential, office and retail use. Retailers understand this and perceive that New York City is the land of opportunity and are jockeying to secure space in prime locations and open stores.
— Robin Abrams is the executive vice president for Lansco Corporation/CORFAC International in New York City.
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