FEATURE ARTICLE, OCTOBER 2004

A RETAIL JOURNEY THROUGH MANHATTAN
Every block has a different character.
Jaime Lackey

Manhattan is known for its shopping, and retailers are eager to establish their presence in the area.

Northeast Real Estate Business recently sat down with two New York retail brokers to get an overview of the city’s retail districts. Matthew Gorman and Allison Winters of CB Richard Ellis lead us through Manhattan district-by-district. Both are vice presidents with the CB Richard Ellis New York Tri-State Retail Services Group.

Harlem

Starting the journey in the north, Gorman says Harlem is continuing to experience a renaissance. He explains, “Due to an increase in residential demand and up-zoning by the city along specific corridors — where the city allows developers to build much larger buildings — there is a lot of development going on [in Harlem].”

While most of the retail activity centers on 125th Street, Harlem’s primary thoroughfare, regional and national retailers as well as banks are following the residential development on corridors such as Lenox Avenue, Frederick Douglass Boulevard and Third Avenue.

The new Harlem office of Warburg Realty, a prominent New York brokerage firm, on Frederick Douglass Boulevard is indicative of residential and retail growth in the area. Additionally, Bally Total Fitness is opening a 25,000-square-foot health club on Third Avenue in East Harlem.

“Harlem had a very rich history many years ago,” Winters notes. “Until recently, most people were reluctant to go because of the appearance of crime; however, much of that perception has changed.”

Upper West Side and Upper East Side

“The Upper West Side and the Upper East Side are consistently strong retail shopping neighborhoods,” Gorman asserts. “It is extremely difficult to find space on the prime avenues (Broadway, Columbus, Madison and Third), which always bring top dollar.”

The Upper West Side and the Upper East Side of Manhattan are composed mostly of residential space, always a top attraction for retailers. Distinguishing between the Upper East Side and the Upper West Side, Winters explains, “In general, when people think of the Upper East Side, they think of lots of money and people who like to spend. Madison Avenue conjures up images of luxury goods and sophisticated shoppers. It is a good market for retail because you have people that are spending money. The Upper West Side is slightly different — more laid back and family-oriented, but an equally strong market.”

Vornado Realty Trust is finishing development of One Beacon Court, featuring luxury condos and office space at the site of the former Alexander’s department store at 58th Street and Lexington Avenue. H&M and The Home Depot are opening stores at the site. Winters notes, “Based on the response to its recent opening on 23rd Street between Fifth and Sixth avenues, I’m confident that The Home Depot will do extremely well in this location.”

Columbus Circle

The Time Warner Center is one of the most exciting new retail developments in New York City. Located at Columbus Circle, the center features 350,000 square feet of retail space, including Hugo Boss, A/X Armani Exchange, Sephora, J. Crew, Coach, Borders Books, Williams-Sonoma and Whole Foods.

“The Time Warner Center [which is located at One Central Park on Columbus Circle] is one of the more significant recent events in retail in Manhattan,” according to Gorman.

The $1.7 billion, 2.8 million-square-foot project was developed by Columbus Centre LLC, a partnership of The Related Companies and Apollo Real Estate Advisors.

Many developers have tried to develop the site in the past. Formerly home to the New York Coliseum, the site now features Time Warner’s 865,000-square-foot headquarters; 201 luxury condominiums; The Mandarin Oriental Hotel with 251 guest rooms; and 350,000 square feet of retail space, including several notable restaurants.

The retail component of the Time Warner Center, which opened in February, is called The Shops at Columbus Circle. Retailers include Hugo Boss, A/X Armani Exchange, Sephora, J. Crew, Coach, Borders Books, Williams-Sonoma and a 60,000-square-foot Whole Foods.

“Initially [the developers] planned for very high-end tenants,” Winters says, but they changed direction and “the project opened with a mix of stores that range from luxury goods to more mainstream retail.”

“Whole Foods is the biggest success story at Time Warner Center. It is doing extremely well,” Winters says.

“Whole Foods has been embraced by New Yorkers,” Gorman adds.

They explain that while most New Yorkers tend to shop based on convenience, Whole Foods draws customers and other retailers want to be near Whole Foods stores. (The grocer has opened its first store in Chelsea and has two locations slated for opening, one in Union Square and the other in the East Village.)

Fifth Avenue

Fifth Avenue continues to be a strong retail destination, according to Winters.

The submarket retains its appeal to tourists, even with its rapid changes. “Fifteen years ago, Fifth Avenue was mostly high-end retailers,” Winters says. “Many of the high-end retailers moved to 57th or Madison and more theme-oriented stores moved to Fifth, including Coca-Cola, Disney and Warner Bros.” Now, more mainstream stores have secured locations along the strip.

As an example of these mainstream stores, Gorman mentions the exciting new American Girl Place, a doll store which has opened on Fifth Avenue across from Saks Fifth Avenue. The store, targeting locals as much as tourists, is known for matching dolls’ clothing with kids’ clothes. The store has a café overlooking Fifth Avenue and has its own theater to show plays written for young girls. The plays, featuring characters in The American Girls Collection, are written by Broadway playwrights. American Girl Place in New York opened in November 2003 and has welcomed more than 1.5 million visitors.

Following the trend of more mainstream stores, Build-A-Bear has its first New York City store slated for the market and Zara recently signed a deal on Fifth Avenue.

Times Square

Today, Times Square is probably the biggest tourist draw in Manhattan, according to Winters.

Times Square, named for The New York Times Company, which was originally located at 42nd Street, Broadway and Seventh Avenue, has changed a great deal in the past 10 years. The area always attracts tourists with its bright lights, the MTV Studios, Broadway theaters and exciting restaurants.

Toys “R” Us opened its 105,000-square-foot flagship store a few years ago and other additions to Times Square include QuikSilver, Skechers, Swatch, Ecko Unlimited (opening soon), Sephora, as well as many movie screens.

Developers that have been active in Times Square include Forest City Ratner, Boston Properties and The Durst Organization. They are bringing in interesting retail. “And the retail has to be exciting with exciting signage,” Winters says. “In other areas of Manhattan, you may have to be discreet with your signage, but in Times Square, bigger and brighter is better.”

Chelsea

“Chelsea, once a manufacturing district, is now home to a diverse mix of retail businesses. This neighborhood flourishes 24 hours a day and 7 days a week and is known for an interesting mix of apparel boutiques, restaurants, hotels, galleries and a growing number of big box retailers,” Gorman says.

The latest additions to Chelsea (stretching its original borders) are the new residential towers along Sixth Avenue between 23rd and 29th streets. The influx of new residents has created greater interest among retailers. Most big box retailers can be found in this part of Manhattan. This list includes Best Buy, The Container Store, The Home Depot, Bed Bath & Beyond, and P.C. Richard and Son.

Chelsea is also becoming a destination for furniture and other home furnishings related stores.

The Meatpacking District

“A brunch and nightlife area,” Gorman describes the Meatpacking District. “It appeals to the young and the not-so-young.”

Winters says, “Meat purveyors have been located there the last 20 years as well as clubs and interesting restaurants. The area changed suddenly and now has more great restaurants, including Pastis and Jean-Georges Vongerichten’s Spice Market.” Retailers include Stella McCartney, Alexander McQueen, Bodum and Jeffrey New York.

Also in the Meatpacking District, the Maritime Hotel and the Gansevoort Hotel have just opened.

SoHo

SoHo, which features lots of industrial, loft-style buildings, has seen better retail days. The area, which saw its last upturn 3 to 4 years ago, has the pedestrian traffic but not necessarily the shoppers that retailers want. Luxury retailers began moving to SoHo in 1993 and the retail activity in the area peaked in 2000 or 2001, according to Gorman. “Rents were skyrocketing, and the traffic just wouldn’t support the numbers,” he says. “We had a life cycle of deals where a lot of tenants were paying ridiculous numbers trying to get in on the young, hip customer and tourists down there. There were some nonsensical deals, and 9/11 just accelerated the inevitable.”

There are some bright spots in SoHo. The Apple Store is doing extremely well, Gorman notes. And Bloomingdale’s recently opened a store between Spring and Broome streets. Prada has a huge store at Broadway and Prince. Winters describes it as “more like a theater than a store, but it is still open,” she says.

Overall, Gorman adds, “SoHo is definitely on a comeback, but rents have not reached the level where they were pre-9/11.”

Rents in SoHo average from $150 to $250 per square foot. “This is still a great market, still one of the most unique locations in the city, but it suffered an economic cycle,” Winters says.

Downtown

Downtown encompasses several submarkets: Tribeca, World Financial Center, City Hall, Wall Street/Financial and Lower East Side.

“Following 9/11, specific Downtown markets have seen moderate levels of leasing activity, however, some retailers are hesitant to sign long-term commitments based on the uncertainty of the ultimate traffic patterns and market values in the near future,” Gorman says.

Gorman adds that Downtown has an influx of large residential conversions. “The aim of the city is to make Downtown a 24/7 neighborhood,” he says.

The City Hall and Wall Street districts have an office population of more than 300,000, “but there is little vibe on the street late at night,” Winters says. “This will hopefully change with the increase in residential properties Downtown.”

The Impact of Small Tenants

Tenants having a particular impact in the Manhattan market today include banks, financial institutions, upscale food markets, gourmet cafés and national cellular stores.

Banks are looking for locations in critical marketplaces, especially corner locations. The banks looking in Manhattan include Wachovia, Bank of America, Commerce Bank, Washington Mutual, Fidelity and Charles Schwab. “The demand helps keep retail strong and pushes rents up,” Winters says. Further, she points out, landlords love banks because of their good credit and cleanliness. The only drawback is that banks don’t create excitement like other retail businesses.

As for corporate cellular telephone stores and coffee shops (primarily Starbucks), Gorman says, “There is one on every block.”

Small restaurants are also having a big impact. “Lunch cafés are big and gourmet sandwich shops are exploding,” Gorman says.

Other retailers are also doing well, including drugstores, especially Walgreens, CVS/pharmacy and Duane Reade. However, competition can be fierce. Winters says, “Larger drugstore chains move in and put local shops out of business. This is a very successful strategy for dominant players.”

Keys to Success in NY Retail

Limited space in New York has caused retailers to be more creative with their stores. “Retailers are learning to make spaces work for them,” Winters says. For example, The Home Depot’s store at One Beacon Court is primarily basement space, as is The Whole Foods in Columbus Circle.

“Location is most important to retailers’ success in New York,” Winters adds. “And a broker is important to negotiating the right rents.”

Winters and Gorman expect new grocery stores to do well in Manhattan. “New York needs better supermarkets in more neighborhoods,” Gorman says. “The older model stores, mostly local gourmet stores of 10,000 square feet, aren’t as appealing to shoppers today.”

“The area also needs stores with lower price points — prices comparable to those found outside the city,” Winters says.

She adds that there are other retailers that New Yorkers would love to see in their city, but the retailers are not sure it is feasible to locate in Manhattan. “Then again,” she says, “a few years ago, who would have thought that we would see Kmart, The Home Depot, Whole Foods and Best Buy? With the disposable incomes of New Yorkers, perhaps anything is possible.”

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