Manhattan Retail Leasing Remains Strong as Rents Stall

Leasing activity remains strong in Manhattan, with intensifying competition for storefronts and a dwindling supply of quality space in prime corridors like Soho and the West Village spurring activity in neighborhoods that are still recovering, according to the Real Estate Board of New York’s latest retail report.

While highlighting continuing confidence in consumer demand, REBNY’s Fall 2022 Manhattan Retail Report—which tracked activity from April through November—noted an overall weakening in asking rents since REBNY’s Spring report.

Of the 16 Manhattan retail corridors examined in the report, nine corridors saw average asking rents decrease compared to the period covered by Spring 2022; two corridors saw average asking rents remain unchanged during the same period; five corridors saw asking rents increase compared to Spring 2022.

The corridors notching significant rent increases track with REBNY’s trending activity report: compared to the spring numbers, asking rents jumped 15% in the West 125^th Street corridor; rents jumped 14.7% in the Broadway corridor between Union Square and the Flatiron district.

According to REBNY, the trend of tight prime corridors fueling leasing activity in so-called secondary corridors as prime space gets exhausted isn’t limited to Manhattan. REBNY’s Fall retail report for Brooklyn also noted increased leasing activity in secondary corridors.

On the down side, average asking rents dropped 11% in the Times Square corridor since the spring as the submarket struggles to fill vacancies. Even in the top prime corridors, average asking rents in Manhattan are still significantly below their pre-pandemic highs.

Written as robust holiday spending is lifting retail sales, the REBNY report did express concern about what may happen if the Fed keeps the pedal to the medal on rate increases as inflation remains stubbornly high.

“Market headwinds must be closely monitored in 2023. The sharpest inflationary pressures and increased borrowing costs since the 1980s will weigh on shoppers, small businesses, and property owners,” REBNY’s Fall report said. “Consumer spending has been incredibly resilient, but spending power isn’t limitless. For the time being, the holiday shopping season in Manhattan is setting up for its stronger performance in a long time.”

The report emphasized that activity, as of the end of November, has been spreading to a wider array of corridors.

“The fact that retailers in both Manhattan and Brooklyn are turning their attention to considering a wider array of corridors underscores their confidence in retail demand. Despite the highest inflation in decades, consumers and tourists still have a healthy appetite for all the city has to offer,” said Keith DeCoster, REBNY’s Director of Market Data and Policy, in the Fall report. “The durability of spending power in 2023 will be a key indicator to monitor.”