Significant Retail Rent Correction Continues in Manhattan

NEW YORK CITY— The retail sector in Manhattan continues to try to find its equilibrium with 15 of the 17 top commercial corridors in New York City seeing declines in rental rates.

A report released by the Real Estate Board of New York for the Fall of 2018 paints a picture of a market in continued decline. In its bi-annual survey, REBNY found that four more corridors are experiencing declines in ground floor retail average asking rent as compared to a year earlier.

Only Harlem’s 125^th Street corridor (between Fifth Avenue and Morningside Avenue) where the ground floor retail average asking rent increased 14% year-over-year to $140 per-square-foot and the Upper West Side’s Broadway corridor (between West 72^nd and West 86^th streets) where the ground floor retail average asking rent rose 5% year-over-year to $306 per-square-foot, bucked the negative trend.

The 15 corridors that registered rent declines was the highest number on record for the REBNY retail report since its inception 18 years ago.

“The ongoing shifts in retail asking rents and lease structures in Manhattan have been a by-product of a natural fluctuation in the market as well as a changing retail industry. These changes will resolve hurdles faced by brick-and-mortar retailers, but time is required for this process to continue,” says REBNBY president John H. Banks. “When markets are allowed to correct naturally without overbearing intervention, they will be more resilient and adaptable in the long run.”

REBNY characterizes the ongoing decline in Manhattan retail rents as a “natural correction” after reaching “unsustainable levels” three years ago and that during the period since then owners and renters have been responding to these changing market dynamics.

“Lease terms are more flexible, owners are accepting more short-term deals, improvement allowances are more generous and retailers are trying different concepts for the new retail market before they agree to a long-term deal,” REBNY states in the report.

Several corridors saw sharp declines in rents year-over-year. The Upper Fifth Avenue corridor (between 49^th and 59^th streets) suffered a 24% drop in rents as compared to the fall of 2017 to $2,973-per-square-foot. REBNY explains the decline in rent was caused by increases in availability and the type of spaces that were available in the corridor.

Currently, there are also 15 corridors, out of 17, with lower average asking rents for ground floor retail space than what they were in the fall of 2015.

The average overall decline in these corridors during that three-year time period was 25%. A total of 10 of the 15 corridor rent decreases were more than 20% and three were more than 30% from 2015-2018.

The corridor with the largest rate of decline was the West Village on Bleecker Street (between 7th Avenue South and Hudson Street), which suffered a 37% decline in the average asking rent for ground floor retail space from $468-per-square-foot in the fall of 2015 to $293 per-square-foot in the fall of 2018. The West Village corridor posted a 17% decline in rent as compared to the fall of 2017. The drop in rent pushed the average asking rent in the corridor below $300-per-square-foot for the first time since REBNY started tracking the market in the spring of 2008.

Average asking rents per-square-foot on the Eastside on Madison Avenue (between East 57th and East 72nd Street); in the Meatpacking District on West 14th Street (between 9th and 10th Avenue); and in SoHo on Broadway, between Houston and Broome Street, continued to decline this fall.

The Madison Avenue corridor posted its seventh consecutive year-over-year rental rate decline to $1,160-er-square-foot. Average asking rents on the Meatpacking District’s West 14th Street and SoHo’s Broadway both fell for the sixth consecutive year-over-year period to $303 per-square-foot and $558 per-square-foot, respectively.