Elbow your way through the throngs in Times Square to the tune of a dozen foreign languages and you may understandably reach one conclusion quickly: Retail is back, baby.
Some claim the biggest spending slump in decades has ended, as confirmed by a 6.4 percent surge in Black Friday sales across the country and the strongest November sales figures in years, according to the National Retail Federation. In terms of the local real estate industry, that means most prime empty spaces could be filled within the next year, brokers say.
New York is still king, but the rest of the world is holding up our throne. Forty-nine million tourists visited New York in 2009, a throng the size of South Korea. “That’s the icing on the real estate cake,” said Faith Hope Consolo, of Prudential Douglas Elliman.
But take a brisk five-minute walk beyond Times Square, to, say, 57th Street, and you can still swing a shopping bag without hitting a soul. The sobering reality is that away from the magnetic tourism pull of the Golden Horseshoe and swanky Fifth Avenue, brokers say some storefronts could stay empty for years.
The data on retail space are frustratingly thin. Critics say that brokers keep competitively advantageous information intentionally hidden; brokers say statistics don’t capture the challenge of finding the right tenant for each space, which can take months or years. For this report, The Commercial Observer compiled the available stats on vacancies, asking rents and major leases. We also spoke to brokers and landlords, as well as doing our own legwork surveying vacancies in major retail corridors.
Asking rents are rising, though vacancies also remain high. Brokers say this means we’ll see a flurry of activity next year, as pent-up demand starts to translate into more deals, and many cite examples of major unannounced leases. “The level of activity in the last several months has picked up,” said Karen Bellantoni of Robert K. Futterman & Associates, who’s represented Elie Tahari and J. Crew, to name just a couple of clients. “What you see is behind the scenes, deals are brewing on these prime streets.”
Asking Rents: Up
Party time in Times Square! Earlier this year Oakley agreed to pay a record-setting $1,400-per-square-foot rent for a spot in SL Green’s 1515 Broadway. Asking rents are also soaring in the area, according to a recent Real Estate Board of New York report, which said that average rents have climbed 21 percent to $1,700 a square foot since the spring.
But it’s not just the neon paradise that beckons. Asking rents also climbed on Bleecker Street, lower Broadway, and up and down Fifth Avenue, according to the board. Overall, Manhattan retail landlords are demanding on average $118 a square foot, or 4 percent more than in the spring, according to REBNY.
Even better news (for landlords, at least) is that tenants aren’t getting space at steep discounts as often. Jeffery Roseman, of Newmark Knight Frank, who brokered this year’s blockbuster Oakley lease, said he’s working on a deal in a neighboring building that will also command around $1,400 a foot in rent.
“For prime retail space, we’re seeing a race to the finish line,” said Nina Kampler, a senior managing director at CB Richard Ellis’ retail division. That makes it easier for landlords to get higher rents and offer fewer concessions.
It’s the Vacancies, Stupid
Still, it’s hard not to notice a big hole in REBNY’s report: vacancies. The board doesn’t track that data, Michael Slattery, a senior vice president at REBNY, told The Commercial Observer. “Brokers tell us that vacancies are not a critical factor,” he said. “If a tenant wanted to be at a certain location, even if the rest of the street was vacant, they didn’t care.”
But the New York Post‘s Steve Cuozzo, in a column last month, took the board to the woodshed for its sunny stats. “It’s just dandy that asking rents for retail spaces in certain tourist-trampled parts of Manhattan are rising,” he wrote. “To which most New Yorkers with eyes will respond: oh, please.”
Continuing: “It omits what’s obvious to any attentive pedestrian: namely, that oodles of vacancies exist within those supposedly white-hot zones as well. Worse, they’re proliferating, even at heavily trafficked corners. What a miserable signal they send at a time when New York’s status as world financial capital is jeopardized as never before.”
Even though New York has the second-lowest retail vacancy in the country, it’s still stubbornly high–even in the white-hot corridors. A Cushman & Wakefield report found that after a strong spring, vacancies were up in more than half the main shopping drags. Worst off was Madison Avenue, while Third Avenue is also still struggling with empty space.
“Times Square is the center of the universe,” said Mr. Roseman of Newmark.
You’ve heard that one before, but it’s becoming increasingly true.
Shoppers from Buffalo to Belgium now skip sedate Fifth Avenue and trendy Soho and for mysterious reasons choose the belching consumerism of 42nd Street. Mr. Roseman’s record-setting Oakley lease is only part of the story. Overall, the vacancy rate in the area has continued to fall, and now sits at 9 percent. Some expect rents will keep rising toward the topmost rents that prime space on Fifth Avenue can command.
Robert K. Futterman has brokered two major leases totaling 120,000 square feet at the newly redeveloped Times Square Building. Mr. Futterman’s team also recently brokered 60,000 more square feet of leases, though he himself declined to provide details.
New tenants Bowlmor Lanes and Discovery Zone demonstrate that Times Square hasn’t lost its quirkier, more down-market side. Tenants “can pay less rent,” said Mr. Futterman, “and still get a big space and big presence.” More recently, the broker said that even some high-end fashion retailers have started eyeing the building, where asking rents are about $300 per square foot for ground-floor space.