According to CBRE's Retail Figures Q2 2023 report, a rebound in international tourism and strong consumer demand has propelled New York City's retail market to better health compared to last year, but clouds remain on the horizon, as subdued optimism characterized the market.
The average asking rent in Manhattan's 16 prime retail corridors increased for the fourth straight quarter to $645 per sq. ft. More importantly, the taking rent index in those 16 markets was 78.8%, up 330 basis points (bps) from Q1 and 930 bps from the 69.5% recorded in Q2 2022., the rolling four-quarter aggregate leasing velocity, which measures both renewals and new leases for the four prior quarters, was 2.7 million sq. ft., a decrease of 11% from the same period last year, according to CBRE.
"The city's retail market is in a better position than last year, and market confidence is higher. The reduction in total square footage leased is primarily the result of some of the best spaces in every market being scooped up and a massive amount of space that came off the market last year," said Matthew Chmielecki, senior vice president, CBRE Retail. "Retailers are now looking harder at secondary and tertiary markets as the number of direct ground floor availability across Manhattan's premier shopping corridors has decreased for eight consecutive quarters."
According to CBRE's Q2 2023 report, health clubs and food & beverage tenants were the main drivers of all leasing activity in the market. Health clubs leased more square footage than any other segment during the second quarter with over 77,000 sq. ft. across five transactions. Vital Climbing Gym's 45,000 sq. ft. commitment at Essex Crossing was the largest lease signed during the quarter, with New York Sports Club's 22,000 sq. ft. renewal at 3 Park Avenue and the martial arts academy Renzo Gracie's 5,000 sq. ft. lease at 31 West 14th Street the third and fourth largest deals of the quarter.
On the food & beverage front, 17 transactions totaling nearly 64,000 sq. ft. were signed during Q2. The largest lease was Lafayette Grand Café & Bakery's 13,000 sq. ft. renewal at 380 Lafayette Street. Other noteworthy deals in this sector included The Mermaid Inn's lease for a 6,400 sq. ft. seafood restaurant at 335 Columbus Avenue, and the Japanese eatery Retro Japan's 5,800 sq. ft. commitment at 87 Seventh Avenue South.
The number of direct ground floor availabilities tracked by CBRE across Manhattan's 16 premier shopping corridors decreased from 206 in Q1 to 200 during Q2 2023, a 2.9% decline quarter-over-quarter and down 17% year-over-year. Strong demand in the Upper Madison Avenue corridor was the impetus for much of the space availability decline. Leases completed during Q2 at 600, 609, 680 and 781 Madison Avenue contributed to the neighborhood's 6.3% quarter-over-quarter and 25% year-over-year availability drop.
Strong demand also helped the SoHo Broadway corridor post a significant decline in availability, dropping 10% quarter-over-quarter and 47.1% year-over-year to only nine direct ground floor availabilities. Demand for the SoHo market remained strong in the second quarter and retailers seeking larger footprints or pop-up locations continued to scour the popular neighborhood.