Manhattan Retail Rents Decline in Most Submarkets in Late 2018

According to the Real Estate Board of New York's bi-annual Manhattan Retail Report, Manhattan's most popular retail corridors experienced widespread asking rent declines in the fall of 2018. Out of the 17 high-profile corridors, 15 posted year-over-year decreases in ground floor retail average asking rents per square foot (psf).

With four more corridors in decline in fall 2018 than in fall 2017, this period registered the highest total number of corridors in decline since the inception of REBNY's Manhattan Retail Report in 2000.

This natural correction in retail rents has been well underway over the past three years. Currently, there are also 15 corridors, out of 17, with lower average asking rents for ground floor retail space than what they were in the fall of 2015. The average overall decline in these corridors was 25 percent when compared to three years ago. Ten of the 15 decreases were over 20 percent and three were over 30 percent. Among the largest of these declines was the 37 percent drop of the average asking rent for ground floor retail space in the West Village on Bleecker Street, between 7th Avenue South and Hudson Street, from $468 psf in the fall of 2015 to $293 psf in the fall of 2018.

REBNY's Manhattan Retail Report Advisory Group has observed that both owners and retailers have been increasingly responsive to the many challenges in New York City's new retail environment. Lease terms are more flexible, owners are accepting more short-term deals, improvement allowances are more generous, and retailers are trying different concepts for the new retail market before agreeing to a long-term deal.

"The ongoing shifts in retail asking rents and lease structures in Manhattan have been a by-product of a natural fluctuation in the market as well as a changing retail industry. These changes will resolve hurdles faced by brick-and-mortar retailers, but time is required for this process to continue," said John H. Banks, REBNY President. "When markets are allowed to correct naturally without overbearing intervention, they will be more resilient and adaptable in the long run."

Changes in retail environments take more time to manifest due to the impact of longer-term factors, according to REBNY's Manhattan Retail Report Advisory Group. These factors include a retailer's timeline for strategizing a business plan, securing financing, and planning improvements to a retail space to fit their business needs, among others.

Additional REBNY Retail report highlights include:

• The two corridors with year-over-year increases were Harlem's 125th Street corridor, between Fifth Avenue and Morningside Avenue, where the ground floor retail average asking rent increased 14 percent year-over-year to $140 psf and the Upper West Side's Broadway corridor, between West 72nd and West 86th Street, where the ground floor retail average asking rent rose five percent year-over-year to $306 psf. These increases were caused by changes in the profile of available ground floor retail spaces along these corridors, not an upward revision of asking rents for existing supply.

• The West Village average asking rent per square foot of $293 on Bleecker Street, between 7th Avenue South and Hudson Street, was a 17 percent decrease from fall 2017. This was the first period that the average asking rent in this corridor fell below $300 since REBNY started tracking the corridor in the spring of 2008.

• Upper Fifth Avenue, between 49th and 59th Street, in Midtown experienced a significant decrease of 24 percent this fall leaving the average asking rent on the corridor at $2,973 psf. This drop was caused by increases in availability and the types of spaces available in the corridor. In previous periods, there were limited availabilities in the corridor and any available spaces were at the higher end of the market.

• Average asking rents psf in the Eastside on Madison Avenue, between East 57th and East 72nd Street; in the Meatpacking District on West 14th Street, between 9th and 10th Avenue; and in SoHo on Broadway, between Houston and Broome Street, continued to decline this fall. The Madison Avenue corridor notched its seventh consecutive year-over-year drop to $1,160 psf. Average asking rents on the Meatpacking District's West 14th Street and SoHo's Broadway both fell for the sixth consecutive year-over-year period to $303 psf and $558 psf, respectively.