New York's Retail Scene Is Undergoing A Painful Rebirth
A tidal wave of new retail is about to transform New York, but it's not without its complications.
New York’s retail market is in the midst of a once-in-a-lifetime transformation, with massive projects like Hudson Yards and the South Street Seaport coming online in Manhattan soon, and projects in several Brooklyn neighborhoods following suit. We heard about them all yesterday at Bisnow's retail forum.
Brookfield SVP Michael Goldban says the thing that makes all those projects viable is New York’s public transit system, which, despite its problems, is far better than that of nearly every other major American city.
“I go to downtown LA and see so many opportunities, and it’s the same story in Houston,” Michael (snapped above with Crown Acquisitions COO Brittany Bragg) said. “But then you look at the transportation situation, and it just leaves developers scratching their heads.”
Panelists also agreed that in Brooklyn especially, developers and retailers are finally starting to wise up to the borough’s untapped retail potential.
“If you took Brooklyn out of New York City it would be the fourth-largest city in the US,” Brittany (snapped above with Fosun's Tom Costanzo) said. “And if you look at it as its own city, Brooklyn is under-retailed on a per-capita basis.”
“So previously you had hundreds of international retailers that didn’t even have Brooklyn on their radar," she continued, "and now they’re starting to come around all at once.”
In addition to the retail-heavy mega-projects in the pipeline in Manhattan, NGKF EVP Jeffrey Roseman says the return of the department stores to the city is revitalizing the entire retail scene in several neighborhoods.
“The re-emergence [of the department stores] has just been great,” Jeffrey (snapped above with Handler Real Estate Organization CEO Scott Galin) says. “They’re getting creative, and not making the same mistakes they did the first time around, with footprints that were too big and boring floor plans, which bodes well for the city as a whole.”
“In Chelsea, for example, it was never the same after Barney’s left,” he says. “Now that they’re back, it’ll lift the whole neighborhood.”
The retail boom isn’t without its complications, however.
As Manhattan’s industrial stock continues to dwindle and as more industrial space in the boroughs is rezoned and turned into office and residential, it’s becoming difficult for retailers to find space for distribution centers.
“We’ve been seeing retailers completely choke on what it costs to distribute now, especially in Brooklyn,” says DLC Management Corp president Adam Ifshin (snapped above with Eastern Consolidated’s Evan Papanastasiou).
There’s also a feeling that rents in some of Manhattan’s pricier neighborhoods have gotten too high for retailers to protect their bottom lines, leading to a possible drop in rents in the near future.
Jason Richter, a principal at Capricorn Asset Management and Hudson Real Estate, says the vacancy rate in historically tight markets like SoHo is worrying. He points to the recent sale of a retail co-op by Joe Sitt’s Thor Equities as a possible sign that market has topped out.
“Joe has always timed the market perfectly, so it’s certainly something to pay attention to,” Jason (snapped above with Cole Schotz’s David Rubenstein) says. “If you have patient money, I’d say you can buy and hold pretty much anywhere in New York and you’re going to see a strong ROI eventually.”
“But if you’re flipping in and out, some of these markets just aren’t cutting it anymore,” he adds. “The real gems are increasingly in Brooklyn these days.”
While the city’s retail scene is changing due to the sheer number of projects in the pipeline right now, it’s also being altered by new approaches retailers are taking.
The dominant trend affecting retailers business models these days is omnichannel, or attempting to synergize the online and in-store experiences, said Howard Hughes Corp senior EVP Chris Curry (snapped above with Woods Bagot’s Frank Alvarez and Schnackel Engineers’ Greg Schnackel).
“As much as the Internet is continuing to become increasingly important in the retail world, it will never take the place of brick-and-mortar storefronts,” Chris says.
“And all retailers are realizing that right now. That’s why you see Amazon building brick-and-mortar stores, and traditional staples like Macy’s retrenching,” he adds. “But those brick-and-mortar stores are going to function differently going forward.”
Westfield World Trade Center SVP Michael McNaughton (snapped above with Stanford Chan of Vidaris) agrees.
“At Westfield, we’re investing more and more in tech, and you’re seeing that across the board, I think,” he says. “We’re investing in mobile point-of-sales technology, in-store GPS tracking, great WiFi, it’s all essential in today’s market.”
“You need to be able to target customers with surgical strikes, as opposed to a leisurely pass,” he adds.