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Fundamental Demand Drivers Remain Strong, Yet Retail Market Faces Headwinds

An aerial view of Manhattan.

Following a rental increase from 2012 to 2014, in which average asking rents rose by 90%, the Manhattan retail market is in a period of easing, according to a new report from CBRE.

Of the 16 corridors tracked by CBRE, 12 recorded decreases in average asking rents year-over-year, while the overall average dropped 2.7% in the past 12 months. Downward pressure on rents is coming from increasing availability, with the total number of available spaces growing by 24.4% quarter-over-quarter.

Economic Trends


The growth of e-commerce, which increased to 8.3% of total national retail sales in 2016, according to the U.S. Census Bureau, continues to put pressure on brick-and-mortar operations. Retailers are also confronting the consequences of overexpansion, often at historically high rents.

Despite some softening, retail in the city is performing well, thanks to both a drop in unemployment and an increase in gross metropolitan product.

Consumer confidence improved sharply in March, increasing from 116.1 to 125.6. In New York City, unemployment is near historic lows, at 4.3% in February, a decrease from 5.6% a year ago, according to the New York Department of Labor. The New York City region’s gross metropolitan product is on the rise, increasing 4.1% year-over-year to $1.2 trillion in Q1 2017.

Total citywide retail sales are also trending positively, increasing 2.1% year-over-year to $134.2B.

Leasing Activity 

Midtown's office buildings remain largely empty amid the pandemic

Three of the five largest Manhattan transactions that occurred in Q1 were with discount retailers.

TJX Cos. signed a 68K SF lease for a Marshalls at 140 West St., across from One World Trade Center. Nordstrom Rack took 44K SF at 855 Avenue of the Americas, and Target signed on for 43K SF at 112 West 34th St., the chain’s third location in Manhattan. Food retailers were the most active in leasing space, accounting for 34% of all transactions this quarter.

Average Asking Rents

The Empire State Building, with One World Trade Center in the background

Despite decreases, average asking rents remain near record highs. Since peaking in the first quarter of 2014, rents have decreased 20.8% across all 16 retail corridors, averaging $850/SF.

Four corridors recorded increases in asking rents year-over-year. The most prominent was Downtown Broadway, which saw rent increase 19.5% to $419/SF. The strong Downtown economy is elevating rents, as new office tenants, a growing residential population and more hotel rooms and tourists increase demand.

The opening of Brookfield Place in 2015, and Westfield World Trade Center and Saks Fifth Avenue in 2016, has positioned Downtown as a retail destination.

On Washington Street in the Meatpacking District, the average asking rent increased by 9.9% year-over-year to $623/SF. While there was no quarter-over-quarter change, with only three availabilities currently on Washington Street, the removal of less-expensive space has increased prices over the past 12 months. On the Upper East Side, where ground-floor availabilities increased from eight in Q1 2016 to 21 in Q1 2017, spaces listed at $425/SF have pulled up the asking rent 6.6% in the past 12 months to $342/SF.

Midtown’s Fifth Avenue between 42nd and 49th streets recorded the largest decrease year-over-year, declining 17.7% to $1,121/SF, after having peaked in late 2015 at $1,366/SF.

In SoHo, increasing availability is putting downward pressure on rents. Average asking rents along the Broadway, Prince Street and Spring Street corridors decreased year-over-year by 15%, 14.1% and 14.6%, respectively.

Despite decreases, SoHo retail is well-positioned. Smorgasburg, a famous Williamsburg open-air food market, is opening a new location at 76 Varick St. this summer, while the neighborhood's desirability as a fashion district will continue to draw shoppers and tenants.

To read CBRE's full report, click here.

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