Manhattan Retail's Rent Decline Is Accelerating
Retail rents in Manhattan continued their downward spiral in the third quarter, but one positive indicator could provide a silver lining.
According to a CBRE market report, average asking rents declined from Q2 to Q3 in 12 of the 16 retail markets the company tracks in Manhattan, for an overall average slump of 6.4%. Taken year over year, the drop is even sharper — 13.4%, compared to Q2's year-over-year decline of 8.6%.
Rents continue to push downward as landlords do whatever they can to fill space, and it might have started to work. CBRE found 197 available spaces in Manhattan, the second straight quarter of decline from Q1's peak of 212 availabilities. However, total square footage available remained flat, and increased by 11% year-over-year.
No neighborhood is more emblematic of New York's retail situation than Times Square. With an average rent of over $2K per SF, it is one of the most expensive retail corridors in the city, but it still saw a 1.8% decline from Q2, and a 6.3% drop year-over-year. Whether due to the rent drop or despite it, Times Square also leased the most square footage of any Manhattan corridor in Q3 — a total of 63K SF from just two leases.
Landlords' impetus to fill space, coupled with tenants' reluctance to make long-term commitments in such a fluid environment, has meant that an increasing share of new leases have been short term, defined by CBRE as three years or less. Even so, leasing activity slowed considerably in Q3, down to 506K SF from the 673K SF leased in Q2.
Among the biggest leases signed in the third quarter was Toys R Us, which took 36K SF at 1466 Broadway despite filing for bankruptcy in September. The toy retailer has pledged to keep its stores open through Chapter 11 proceedings, and the new location in Herald Square will open as originally planned.
The Flatiron District could be perhaps the most stable retail corridor in the borough, as the stretch of Fifth Avenue between 14th and 23rd streets saw a 14.8% year-over-year increase in average asking rents. The neighborhood did not quite keep pace with the previous era's exploding retail rent growth, and as a result has not had nearly as far to fall.
CORRECTION, OCT. 17 5:20 P.M. E.T.: The most expensive retail corridor in Manhattan is Fifth Avenue between 49th and 59th Street, not Times Square, as a previous version of this story indicated. This story has been updated.