How Technology, Rising Rents And New Lease Terms Are Changing Manhattan's Retail Game
Is it worth staying in SoHo if you can cut your rent in half by moving a few blocks away? How can brick-and-mortars turn online sales into an advantage, instead of a liability? Get a sense for how the retail community is trying to answer these and other questions at Bisnow’s 6th Annual Retail Forum on March 15.
Retail opportunities in Manhattan are shifting, as rising rents push some retailers out of their longtime homes and bring new brands to areas they previously wouldn’t have considered.
Evan Papanastasiou, a director at Eastern Consolidated (snapped above center left, along with EC’s Luke Gensberg, Jeff Rosenfeld and Michael Coghill) says the dynamic is particularly apparent in West Chelsea and Nolita.
Smaller galleries are getting priced out of West Chelsea, he says, as high-end residential development drives up rent. That’s attracting gourmet restaurateurs to the area, however, and chains are adapting as well—Starbucks just opened a location that’s mostly below-grade, with an “edgier, gallery-type feel,” Evan says.
The story is similar in SoHo, where sky-high rents have forced so many retailers into nearby Nolita that high-end brands are taking notice and turning the latter into a “retail-driven mecca,” Evan says.
If you’re a retailer in SoHo, “you can move one block east" to Nolita, "and have your rents cut by half, sometimes even a fourth,” Evan says. The end result is brands like Helmut Lang and Dita Sunglasses—which previously would’ve turned up their noses at anything other than Madison or Fifth Avenue—have recently set up shop in Nolita.
Retailers are also struggling to adapt to an uncertain world, as they try to figure out where e-commerce fits in to their business model.
Omni-channel, or integrating online sales with brick-and-mortars business, is one of the hottest issues facing retailers today, says Tony Lupo, a partner at Arent Fox (snapped above to the left, with Ralph Lauren's Francis Pierrel).
“No one’s mastered it yet, but everyone’s flirting with it,” he says. “There’s a tremendous amount of interest in figuring out how to use your data to drive traffic to stores from the website, and vice versa.”
Tony says he also sees retailers increasingly drawn towards more flexible leases these days. Often the landlord will have more of a vested interest in a store’s profitability, and new kick-out options allow them to give stores the boot if agreed-upon goals aren’t met, meaning stores can get in and out in a three- to five-year window.
“Right now the industry is struggling to find the best model,” Tony says. “They want flexibility and they’re willing to pay more for it.”
While big brick-and-mortars may be feeling some pressure from online competitors, they’re far from down and out.
In fact, Scott Galin, principal and CEO at Handler Real Estate, says the trend that excites him the most is the influx of department stores into the city, after nearly 50 years of retrenchment.
Five new stores—two by Saks and one each from Nordstrom, Barney’s and Neiman Marcus—are set to open by 2018, with a combined footprint of over 650k SF.
“It reflects the cyclical nature of the market and a return to a more traditional shopping experience, updated for the modern consumer,” Galin says.
That certainly squares with Tony’s experience. He says the big brick-and-mortars, especially Macy’s, have been some of the quickest to adapt to online shopping and use omni-channel effectively. Macy’s, for example, has a “virtual assistant” app that helps shoppers find what they’re looking for inside the store.
To learn more about these and other trends in New York's retail market, check out Bisnow’s 6th Annual Retail Forum on March 15. Register here.