According to the Real Estate Board of New York's latest bi-annually Manhattan Retail Report, Manhattan's retail market correction continued this spring with per square foot ground floor retail average asking rents declining year-over-year in 9 of the 17 high-profile corridors.
"The findings from our report and insight from our Advisory Group point to developments in the market that offer reasons for optimism," said John H. Banks, REBNY President. "Retailers face heightened challenges from mandated labor cost increases. However, creative use of space and personal branding are transforming the retail market. The relocation of quality retailers throughout Manhattan are shifting retail boundaries and debunking the baseless myths about the city's retail vacancies and the retail market."
A major theme in the transition of the Manhattan retail landscape, as emphasized by REBNY's Manhattan Retail Report Advisory Group, has been the shift from retail brands occupying numerous locations around the city to fewer, but more impactful locations. These physical spaces are designed as an extension of retailers' brand marketing to create a sense of "belonging" and shareable moments for the customer. Retailers have employed the use of artificial intelligence, robotics, and data mining to offer a personalized shopping experience that provides brand empathy and is also social media friendly.
During previous market cycles, retailers were drawn to major Manhattan shopping corridors and reliable foot traffic. The appeal of these streets remain while tenant interest has partially shifted to locations slightly off the main shopping corridors, as creative retailers seek nearby locations whose cachet is on the rise and/or utilize their brand resonance to generate their own foot traffic.
Establishments are also dealing with heightened challenges from legislation, most notably mandated labor cost increases. The $15 per hour minimum wage law will fully vest at the end of 2018, which poses an additional cost uncertainty for retailers, especially labor-intensive restaurants. REBNY's Manhattan Retail Report Advisory Group has acknowledged that this law, as well as the expensive cost of restaurant build outs, has the potential to impede retail leases with food tenants. These deals have thrived during the retail adjustment period and are very important to neighborhood development.
Addition Market Highlights Include:
SoHo's Broadway corridor, between Houston Street and Broome Street, saw the biggest average asking rent drop this spring compared to last year; a 27 percent decline to $595 psf. REBNY's Manhattan Retail Report Advisory Group noted that this corridor is undergoing a major transition in rents due to nearby competition and a changing perception of the corridor by major brands.
Midtown's Upper Fifth Avenue, between 49th and 59th Streets, registered a higher average asking rent this spring compared to last spring. The spring 2018 average of $3,900 psf was 17 percent greater than last spring. Very limited ground floor retail availability along this corridor made market conditions more difficult to discern.
Average asking rents on the East Side's Third Avenue, between East 60th and East 72nd Streets, fell 26 percent to $264 this spring compared to last spring. After reaching a record high average asking rent of $371 psf in spring 2016, the corridor began to experience high availability and low demand. Retail property owners have adjusted rents accordingly and there has been more deal-making and renewed retailer interest in the corridor.
Year-over-year average asking rent increases were recorded for: Midtown South's Flatiron Broadway corridor, between 14th and 23rd Streets, where the ground floor retail average asking rent rose three percent to $360 psf year-over-year; the West Side's Broadway corridor, between West 72nd and West 86th Streets, where the average asking rent increased three percent year-over-year to $325 psf; and Lower Manhattan's Broadway corridor, between Battery Park and Chambers Street, where the average asking rent increased two percent year-over-year to $368 psf in spring 2018.