Rent Correction Continues as Apparel, Jewelry Firms Drive Deals

NEW YORK CITY—While retail rents in New York City continue to fall as landlords try to remain flexible in response to changing market conditions, forecasters are optimistic about the upcoming holiday season here.

Commercial brokerage firm CBRE released its third quarter report on the Manhattan retail market on Tuesday and noted that the average asking rent across Manhattan’s 16 main retail corridors dropped 8.4% year-over-year, falling from $875-per-square-foot to $802 per-square-foot.

Fifth Avenue in the Flatiron/Union Square districts recorded the largest increase year-over-year with asking rents increasing 6.8% to $434-per-square-foot year-over-year. Herald Square was also a bright spot with a 6.1% increase in average asking rent to $610-per-square-foot.

Leasing velocity softened during the third quarter, closing out with 484,000 square feet of velocity involving 75 transactions. Some of the notable and sizable transactions during the three-month period included Tiffany & Co.’s 73,530-square-foot sublease at 4 East 57th St., which was the largest transaction in the third quarter as it will relocate into the space while renovations continue at its flagship location at 727 Fifth Ave. The second largest transaction was  Alamo Drafthouse Cinema’s 45,000-square-foot lease at 28 Liberty St. in the Financial District.

Another significant deal in the Plaza District was designer gown label Pronovias’ lease of 10,035 square feet at 45 E. 58th St.

Food and beverage tenants inked 25 deals, while 18 were signed by tenants in the apparel industry. Jewelry retailers also accounted for close to 17% of the total square footage leased in the quarter, with just over 80,000 square feet in transactions.

“The luxury and jewelry industries were very active during the third quarter,” says Andrew Goldberg, a vice chairman at CBRE. “Tiffany and Co., Balenciaga and Celine all signed deals during the third quarter, helping to bolster the sector’s leasing activity.”

During the third quarter, the Plaza District was once again the most active neighborhood in terms of leasing velocity, with nearly 100,000 square feet leased. SoHo has the largest number of transactions signed during the third quarter with 13 closed deals.

Even with rents continuing to drop, forecasters are still predicting a robust 5-5% to 6.0% increase in sales during the holiday shopping season with sales nationwide expected to exceed $1.1 trillion. E-commerce sales during the holidays are expected to rise between 17% to 22%.

“The Manhattan retail market continues to search for the right level with respect to rent, as landlords show ongoing willingness to negotiate lease rates and terms in order to secure tenants,” says Nicole LaRusso, director of research & analysis, CBRE Tri-State. “However, the positive local and national economic conditions and the prediction for a strong holiday shopping season ahead are creating great opportunities in New York.”

She notes that with more consumer spending going to e-commerce, “success in the market will increasingly rely on retailers pivoting to an omni-channel approach, with close integration of e-commerce within the bricks-and-mortar retail store, and online brands seeking out space for in-real-life stores.”

LaRusso notes that innovative and nimble retailers will continue to find that the New York market is a great place to do business.