Manhattan Retail Rents Continue to Decline Despite Strong Leasing Volume
“2018 was a year of market evolution,” CBRE's LaRusso said in the retail report. “Rents are broadly down and activity in the market continues, with tenants currently in the dominant negotiating position."
NEW YORK CITY—Despite some strong economic numbers, including an increase in quarterly retail sales, the average asking rent for retail space in Manhattan continues to fall.
The aggregate average asking rent for retail space in Manhattan declined 2.3% in 2018 as compared to a year earlier from $696-a-square-foot at the end of 2017 to $680-per-square-foot at the close of 2018, according to a report released by commercial brokerage firm CBRE.
“Despite strong economic conditions with increasing levels of gross city product, employment and total retail sales, the Manhattan retail market continues to struggle with declining rents and an increasing amount of available space, conditions evident in both the fourth quarter 2018 and the year overall,” said Nicole LaRusso, director, research & analysis for CBRE in the report.
She noted that leasing activity was solid in 2018, although a bit slower in the fourth quarter, which still saw more than 64 lease transactions totaling approximately 400,000 square feet. The predominant retail leasing sectors in the last three months of 2018 were the entertainment and food and beverage industries. Total retail leasing activity in New York City in 2018 totaled 2.7 million square feet that involved 546 deals.
The most active markets in the fourth quarter were SoHo with seven deals totaling 68,057 square feet, followed closely behind by the Upper West Side with six deals totaling 62,257 square feet. The Plaza District came in third with four deals totaling 39,258 square feet. Chelsea (31,969 square feet) and the Upper East Side (29,980 square feet) each had three lease deals in the fourth quarter. It should be noted that the Grand Central District registered five lease transactions totaling 19,474 square feet, according to the CBRE report.
“2018 was a year of market evolution,” CBRE’s LaRusso said in the retail report. “Rents are broadly down and activity in the market continues, with tenants currently in the dominant negotiating position. In this vein, lease structures like free-rent periods and tenant improvement allowances are now standard practice.”
A total of 11 of the 16 tracked retail corridors in Manhattan posted a net increase in availabilities in 2018, while three—4th Street in the Meatpacking District, Fifth Avenue in the Grand Central District and Spring Street in SoHo—had net declines in availability.
“Landlords are adapting to changing market demand, splitting up larger spaces into smaller blocks, which contributed to an increase in the number of ground-floor availabilities during the year,” CBRE stated in the report.
Other key data points from the CBRE fourth quarter retail report include:
• Looking at the average pricing among the 16 corridors, asking rents decreased 8.4% year-over-year in the fourth quarter of 2018. The rate of decline remained relatively flat over the past 12 months, but was slower than the steep decreases posted in 2015.
• Upper Madison Avenue rents fell 15.4% from the end of 2017 ($1,286-a-square-foot) to $1,088-a-square-foot at the close of 2018.
• Third Avenue on the Upper East Side suffered the largest decline in average rent, falling 17.6% from $291-a-square-foot to $240-a-square-foot.
• Rents on Fifth Avenue in both the Plaza and Grand Central districts fell 11.4% and 11.6% respectively year-over-year.
•14th Street in the Meatpacking District had the largest percentage growth increase in average asking rent in 2018, rising 7.2% to $351-a-square-foot at the end of the fourth quarter of 2018 as compared to $327-a-square-foot a year earlier.