Manhattan Retail: Leading Indicator of Soft Landing?

Before the new CPI numbers came out this week, we thought maybe the latest retail stats out of Manhattan were an outlier, the false flag of a recovery that would be overtaken by a recession in the second half of the year.

In its new Q2 retail market report, written before we all heard that the inflation rate is down to 3%, CBRE said “subdued optimism” characterized Manhattan’s retail sector, which sounded about right—yesterday.

Now that we have solid evidence that the fever of inflation really has broken, there’s no reason to be subdued subdued about it: let’s call this a leading indicator of a soft landing.

A rebound in international travel and strong consumer demand—let’s stop calling it “revenge spending”—continued to fuel a solid retail recovery in the Big Apple in Q2 2023, according to CBRE’s report.

The average asking rent in Manhattan’s 16 prime retail corridors increased for the fourth straight quarter to $645 in the second quarter, up 12% from Q1. The taking rent index—which measures how close taking rents are to asking rents—for the prime corridors was up 330 bps from Q1, surging to about 79%, a 930 bps jump from the index a year ago at this time, CBRE reported.

The number of direct ground floor availabilities across the 16 premier shopping corridors decreased for the eighth consecutive quarter to 200 from 206 in Q1, a 17% drop in a YOY comparison and a 31% improvement over the pandemic peak of 290.

Retail leasing in Manhattan continues to follow a “top down” trend, CBRE said, as superior locations have attracted a larger share of demand. This trend contributed to robust second quarter demand in the Upper Madison Avenue corridor, where the number of available prime spaces dropped to 30.

The diminished number of available prime spaces contributed to a modest slowdown in leasing velocity to 2.7M SF, an 11% dip from the first quarter.

“The city’s retail market is in a better position than last year, and market confidence is higher. The reduction in total square footage leased is primarily the result of some of the best spaces in every market being scooped up and a massive amount of space that came off the market last year,” said Matthew Chmielecki, senior vice president, CBRE Retail.

“Retailers are now looking harder at secondary and tertiary markets as the number of direct ground floor availabilities across Manhattan’s premier shopping corridors has decreased for eight consecutive quarters,” Chmielecki said.

SoHo, the Upper West Side, SoHo and the Meatpacking District led the leaderboard in the number of leasing transactions in Q2, with 9, 7 and 7, respectively.

In terms of tenant types, the most active retail sectors, based on numbers of deals, were food and beverage, apparel and fitness centers/health clubs—the largest single transaction was a 45K SF lease inked by Vital Climbing Gym on Broome Street in the Lower East Side.

Despite the upbeat Q2 results, there’s still a long way to go:

“While overall demand for prime spaces in the city continues to rise, leasing remained 35.9% below the peak of 4.2M SF recorded in Q2 2019,” CBRE’s report noted.