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Retail Rents Have Dropped More Than 20% In Parts Of Manhattan As Landlords Get Desperate

Asking rents in some of the world’s most famous retail high streets have seen stunning drops in the last few months, as landlords begin bending over backward to fill space.

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The Oculus at the World Trade Center, a retail and transit hub in Lower Manhattan, has been mostly empty since the pandemic started.

Direct ground-floor retail availability hit a new high of 254 spaces across the 16 prime retail corridors in Manhattan, according to a CBRE retail report released Wednesday. Leasing velocity slowed again and rents tumbled, as the average asking rent hit dropped 13% year-over-year to $659 per SF in Q3, a 4% drop from Q2.

Some parts of the city, particularly those where rents have soared in previous years, experienced particularly severe rental declines. On Prince Street in SoHo, average asking rents are now down 42%, going from an average of $705 per SF this time last year down to $405. SoHo's Broadway and Spring Street corridors' asking rents dropped 20.1% and 16.8% year-over-year, respectively.

The Meatpacking District has also taken a hit — rents there are on average $448 per SF, a 22% decrease from last year. Stretches like Times Square and Fifth Avenue in the lower 40s also saw sizable decreases.

“Landlords are trying to be very negotiable and trying to make it work … I am sure there is lots of creative deal-making happening,” said CBRE Tri-State Director of Research Nicole LaRusso, the author of the report. “The things that normally make the retail market in New York so fantastic, they are all going through difficult moments. All the demand drivers are down.”

Record-high residential vacancy and office buildings that are still largely empty are all driving retail’s problems, she said, though there has been an increase in traffic since the start of the summer.

“There are going to be a lot of retailers that have suffered that will see the opportunity of rents that are much more favorable,” she said.

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An empty storefront in Manhattan

Though there are some bright spots, right now they remain few and far between. During the third quarter, the rolling four-quarter aggregate leasing velocity — a measurement collating both renewals and new leases for the previous 12 months — fell under 3M SF. That represents a 16% decrease from the quarter before and a 31% year-over-year drop.

Activity is set to remain slow for the rest of the year, per CBRE. The biggest retail lease last quarter was Rockefeller Group’s deal that saw Greek restaurant Avra Estiatorio taking 16K SF at 1271 Sixth Ave. That deal helped push the Plaza District to a total leasing velocity of 25K SF, the most active part of Manhattan last quarter. SoHo reached 21K SF in the third quarter, with four deals recorded including Paul Smith’s 10K SF lease at 134 Spring St.

Meanwhile, Zappos took 16K SF for 10 years for a new brick-and-mortar store at 19 Union Square West. Overall, food and beverage tenants were the most active in the market.

There is no doubt a major reset that was already in motion is accelerating.

"We have retailers going in, landlords are saying, 'You can take a lower rent but I am going to share profits with you,'" Meridian Capital Group' David Schechtman said on a recent Bisnow webinar.

Silver Eagle Advisors co-founder Wendy Silverstein, who has worked at Citibank, Vornado, New York REIT and WeWork, described retail as “clearly” distressed.

“There's been very little price discovery to what the 'new value' is of some of these properties," she said on Bisnow’s podcast last week. "High street retail rents [in Manhattan] were so ridiculously high, they weren't sustainable, even when the market was good ... The rents have just got to be a fraction of what they are so businesses feel safe to take the risk opening up."

Just this week, the market got a glimpse into where values on retail properties may be landing. Akris, a Swiss clothing retailer, paid $45M for three retail properties on Madison Avenue, The Wall Street Journal reported, marking an 80% drop from the peak of the market in 2014.

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1271 Sixth Ave. where a Greek restaurant leased space in Q3 2020

“Landlords are coming to the table, and putting [renegotiations] in writing,” said Compass Vice Chairman Robin Abrams, a retail broker. "Tenants are making decisions about whether they will stay or vacate."

Some apparel stores are back in the market, according to Abrams, as well as e-commerce users. Essential services like pharmacies, urgent care and dentists are beginning to take more of the vacant space.

“Landlords are becoming more realistic and deals are being done,” she said.

Still, availability is at a “new high watermark” according to CBRE, with 254 ground-floor availabilities now across the borough.

The increase was worst on the Upper West Side, where availability increased 50% from last year. The impending closure of Century 21 will likely add more empty space to the area.

“I’m not going to BS you and tell you that everything is great, it’s not. But it’s not as bad as people on the outside think,” said Brandon Singer, who just formed Retail by MONA, a new retail real estate leasing and advisory firm that has a strategic partnership with Aby Rosen’s RFR Holdings.

Singer said people said he is “insane” to start this type of company at this time, but he believes it is a great opportunity. 

He said his firm has already found space in the boroughs for a logistics company called Fabric, though he declined to provide specifics. The company provides fulfillment for grocery and other retail with a heavy use of robotics, according to its website.

“This is the future of retail, he said. “This is the type of tenant that goes in to take the space.”