E-tail turns M’hattan into bargain basement

Manhattan retail rents crashing

MANHATTAN

retail rents have slid into their deepest and longest slump in 17 years, a new report confirms — with Soho rents slashed by more than a third since their 2015 peak.

In what some have dubbed a “retail apocalypse,” rents have skidded for two years throughout most of Manhattan’s shopping districts as a massive shift to online shopping has tanked demand for pricey storefronts, according to a report from the Real Estate Board of New York.

“The high rents of previous years are receding despite owners’ efforts to maintain rent levels through shorter-term leases and more generous concessions,” REBNY reported. “Deals are still getting done, but they favor parties willing to be flexible with deal structure, uses and asking-rent adjustments.”

Bleecker Street between Seventh Avenue South and Hudson Street suffered the steepest average decline in annual asking

rent compared with last year: a 25 percent drop, to $351 per square foot. The luxury retailers that flocked to this Greenwich Village locale a decade ago when rents were low have now moved elsewhere.

“The brokers really thought the rents overshot the neighborhood,” said REBNY’s chief research economist, Brian Klimas.

Since the spring of 2007, REBNY statistics show at least one corridor has landed in negative territory in any given season, but the new report now shows 13 of the 17 are asking lower rents.

Two of the priciest areas have been hit the hardest. In Soho, storefronts along Broadway from Broome to Houston maxed out with an annual asking rent of $977 per square foot in the spring of 2015. It’s now pegged at $644 per square foot — a 34 percent drop.

Madison Avenue’s highest average rent between East 57th and East 72nd streets was $1,709 per square foot in the fall of 2014 and is now $1,348 per square foot — a 27 percent slide and a 7 percent drop from this spring’s $1,446 per square foot.

That area of Madison also now has the broadest range of asking rents — from $520 to $2,135 per square foot — as some owners tried harder to make deals and certain blocks are simply less valuable than others.

“Madison is one of the corridors where [rents] are higher at the southern end,” added Mike Slattery, senior VP at REBNY.

Surprisingly, Fifth Avenue’s Gold Coast between 49th and 60th streets now enjoys its highest average ask at $3,900 per square foot as most storefronts are now leased. The most prominent availability there is the former Polo Ralph Lauren store that is now sifting offers through Gene Spiegelman at Cushman & Wakefield.

In fact, Cushman & Wakefield just said that particular stretch of Fifth Avenue is the most expensive of all the “High Street” retail around the world with a June average of $3,000 per square foot and up 20 percent over the last five years. Worldwide, Hong Kong’s Causeway Bay and London’s Bond Street are Nos. 2 and 3.

REBNY pegged the previous Fifth Avenue peak in spring 2015 at an average of $3,683 per square foot. The highest rent achieved was in December 2015 at $5,500 per square foot for Bulgari’s prime southwest corner lease at Jeff Sutton’s Crown Building at West 57th Street and Fifth Avenue.

A separate report by CBRE earlier this month found that, since the average rent peak in 2014, overall Manhattan asking rents have fallen 23 percent.

Yet tenants are still pouncing on the most coveted locations when building owners can meet their bottom-line needs by providing work on the premises and longer free-rent periods.

The stores that are successful — like the American Girl outpost that opened this month in new digs at 75 Rockefeller Plaza — are also providing the “experiential retail” that makes shoppers feel special.

This fall, only three nabes eked out positive rent growth. These were all along Broadway: in Lower Manhattan, in the Flatiron District and in Times Square.

On the Third Avenue corridor from East 60th to East 72nd streets, rents dropped 27 percent, to $261 per square foot, from this spring’s $356, and are down 23 percent since last fall’s $340 per square foot.

Brokers believe Third Avenue is still trying to find “a purpose,” Cushman & Wakefield’s Spiegelman said. “The national soft-goods brands are not seeking spaces there, so there has to be a reconsideration as to the tenant mix.”

In Soho, Broadway’s asking rents between Houston and Broome streets were down 21 percent, to $644 per square foot, since the spring’s uptick to $812 per square foot, and were down 15 percent from last fall’s $755 per square foot.oot. This comes as luxury ten-ants flee to the side streets, leaving Broadway to nationals that are still wary of spending too much on new storefronts.

At Herald Square, thee stretch of West 34th Streetet from Fifth Avenue to Seventh Avenue has seen rents drop by 14 percent, to $633 per square foot, since the spring when pricing was $734 per square foot. And pricing is 15 percent off the $745 per square foot asked just one year ago. Across town on the Upper West Side, REBNY’s retail broker advisory group was bummed about the area’s new restrictive zoning limitations on the size of storefronts. “[They] have cut down the number of viable potential tenants in a market already struggling with reduced demand,” the report observed. Along Broadway from West 72nd to 86th streets, rents are down 15 percent from a year ago and 8 percent since spring, to an average of $291 per square foot. Similarly, along Columbus Avenue from West 66th to 79th 7 streets, rents were down 16 percent from the fall of 2016, and another 2 percent since this spring, to $338 per square foot. On the positive side, asking a rents along Broadway wa in the Flatiron District between 14th and 23rd streets turned positive: up 10 percent, to $384 per square foot, from spring’s $348. But they’re still down 2 percent from last fall’s $390 per square foot.