Shopping Center Business

DEC 2017

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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NEW YORK CITY 48 • SHOPPING CENTER BUSINESS • December 2017 T he retail landscape in New York City is changing. Retail rents in Manhattan continued to decline through the third quarter of this year — the result of an envi- ronment where pricing has been mis- aligned with current demand levels, according to CBRE's New York City ViewPoint report. The overall average asking rent in the market has decreased by 23 per- cent since hitting historic highs in 2014. During that same period, retail sales have continued to grow, leading to better alignment between what ten- ants are asked to pay and the revenue they can achieve, according to CBRE. This shift presents challenges for cer- tain landlords and investors, while opening up opportunities for tenants to test the waters in previously un- affordable spaces in New York City. The majority of Manhattan's main shopping corridors have experienced declines in average asking rents in re- cent years, according to the report by CBRE. The largest declines have been seen in Herald Square, down 42 per- cent since they peaked after the reces- sion; SoHo, down 30 percent; Upper West Side, down 28 percent; Upper Madison Avenue, down 27 percent; Grand Central, down 25 percent; and the Upper East Side, down 23 percent. Upper Fifth Avenue and Times Square — which have some of the most expensive asking rents in the world — have fared better. The Plaza District (Fifth Avenue from 49th to 50th Streets) rents peaked at $3,850 per-square-foot for ground-floor space and posted $3,412 in third quarter, a decline of 11 percent. Meanwhile Times Square rents peaked at $2,413 and recently posted $2,086, a decline of 14 percent. The Flatiron District and Union Square section of Fifth Avenue have fallen by only 3 percent. Downtown Broadway saw rents rise through the second quarter, aided by the delivery of new developments, but they are down 2 percent from their peak. "It's a very choppy market right now in that we're really seeing an overall correction in the fundamentals," says Scott Plasky, first vice president of investments at Marcus & Millichap. "You're seeing new tenants emerge, some older established companies go by the wayside and a correction in how much money retailers can gen- erate in a location, and therefore how much they can afford to pay. There are retailers that want to be in every mar- ket in New York, it's just the function of how much you can charge people to be there, and what types of tenants are going to fill that space." NEW DEVELOPMENTS TAKE SHAPE Manhattan and Brooklyn top develop- ment activity, with interest in the outer boroughs rising, according to Marcus & Millichap's Retail Research Market Re- port. Manhattan retail deliveries reached 755,000 square feet over the 12 months leading into the fourth quarter, increasing from the 50,000 square feet brought on- line in 2015. In Brooklyn, deliveries over the past year have totaled 920,000 square feet — more than triple the 2015 comple- tions of 285,000 square feet. New Opportunity For Tenants In New York City With developments under construction, higher vacancies and declining rents, New York City offers more cost-effective options for new and expanding retailers. Katie Sloan Brookfield Place, developed by Brookfield Properties, is located in downtown Manhattan and offers 300,000 square feet of luxury retail and dining.

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