As Prime Spaces Dwindle, NYC Retail Demand Isn't Trickling Down

The good mood was palpable at ICSC's New York this week, with the retail sector’s strong performance this year, resilient consumer spending and rising rents.

But the K-shaped economic recovery, where the highest earners are increasing their spending while everyone else tightens their belts, also applies to retail landlords.

The New York City retail market is echoing its office counterpart’s recent trajectory, with best-in-class space filling up at lightning speed. But unlike the Manhattan office market, where the lack of trophy availability is pushing more tenants to lower-quality buildings or locations, there is less spillover demand in retail, said Ebere Anokute, CBRE’s Americas head of retail research.

“Owners don't have as much leverage to push up pricing because retailers don't necessarily want the space that's left on the market,” Anokute said from the conference floor at the Jacob K. Javits Convention Center. 

Retailers hunting for NYC space have spent the past year facing an ever-narrowing array of options. Landlords inked deals for more than 3M SF of retail space by September the year, according to the Partnership for New York City, pushing vacancy rates toward historic lows. 

That pattern continued into Q3, according to CBRE’s most recent quarterly report: Ground-floor availabilities in the 16 premier shopping corridors tracked by the brokerage were down 7% quarter-over-quarter, while the aggregate four-quarter leasing velocity was up 43% compared to a year earlier. 

“We've seen that flight-to-quality trend that we saw with office — and other property types, too — replicate itself in retail,” Anokute. “We're seeing that same sort of stagnation with asking rents as well.”

Prime retail corridors synonymous with luxury brands have held onto the strong growth that emerged postpandemic. Asking rents have steadily traveled upward of $2,200 a SF for the past year on Upper Fifth Avenue, while availability on Madison Avenue has dropped by 5.5% over the past year, Cushman & Wakefield’s Q3 report shows. 

But other corridors with fewer luxury brands haven't kept up. Asking rents dropped 5.9% in the Financial District at the end of Q3, despite vacancy falling by 1.7% year-over-year. Herald Square recorded a 39% retail availability rate in Q3 after tenants, including Forever 21, Uniqlo and Kay Jewelers, vacated large blocks of space, Crain’s New York Business reported.

Fewer tenants being interested in retail corridors without luxury brands has a knock-on effect on asking rents for those landlords, brokers said at ICSC. Consequently, those owners will have to continue structuring leases creatively, with concessions in the form of higher tenant improvement allowances and free rent, if they want to fill up their spaces in 2026, Anokute said.

Savills President of Leasing for U.S. Retail Todd Siegel said the elite shopping districts nationwide — like Madison Avenue, Rodeo Drive in Beverly Hills and Oak Street in Chicago — have essentially filled up.

“There is not a lot of vacancy that is A+ vacancy in these marketplaces,” he said. “It is very difficult for this luxury sector to penetrate a Rodeo [Drive] or an Oak Street.”

Midwood Investment & Development has roughly 1% vacancy in its nationwide portfolio, which has been expanding to markets like Philadelphia and Pittsburgh but includes properties 92 Prince St. in SoHo and the Mill Building in Williamsburg.

“2025 got to the point where there wasn't a lot of really good quality available retail space, and rents have gone up considerably,” said Ron Bondy, Midwood’s executive vice president of leasing. “Retail real estate is at a very, very strong point in general — not just in New York, but in other markets around the country.”

In markets without New York's sprawling urban retail footprint, landlords are holding out for their preferred tenants, taking advantage of the lack of competition, Newmark Head of U.S. Retail Research Brandon Isner said.

“Retail remains at the near record low availability, and so landlords can be choosier about who they want for their spaces,” he said. “That's national.”

That extends to best-in-class malls and retail complexes, which have tenants queuing up, Ripco Real Estate Partner Gene Spiegelman said. 

“There’s waiting lists for the top shopping centers,” he said. 

Tenants are adamant that they only want to be in certain spaces. That might mean they have to adapt their formulas to get the real estate they covet, like IKEA is currently doing in Manhattan.

The big-box furniture store announced last year it would open up shop in 80K SF at the base of Extell Development Co.'s 570 Fifth Ave. project, purchasing a stake in Gary Barnett’s development to do so. And earlier this year, it bought another space: a 53K SF SoHo building at 529 Broadway. Those footprints are far below the 300K SF to 450K SF suburban boxes that IKEA normally chooses.

“Retailers are definitely having to get creative about the locations that they're choosing, as well as their store formats,” Anokute said. “That's a specific New York trend, with regard to wanting to push store formats smaller and to do more with less.”

What many brands haven't yet been willing to do, market experts told Bisnow at the conference, is take space outside of a prime cluster.

A handful of luxury retailers made splashy moves on Fifth Avenue in the past year — Prada’s $835M purchase in December 2023, Kering’s $963M acquisition a month later, LVMH’s under-construction new flagship — and competition has been escalating in SoHo.

But that activity has notably quieted down in recent months.

"What I'm hearing anecdotally is that [luxury brands are] definitely in a stage of rationalizing their real estate portfolios right now,” Anokute said. “So I don't know that we're going to see super-extensive luxury expansion over the course of the next year, especially in New York."