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As a global player, New York City enjoys top-shelf retail advantages that continue to support the market as they always have — by keeping one foot on the gas pedal and one eye on the rearview mirror, as the recessionary cycle fades further out of view.
From an economic perspective, New York City is recovering by leaps and bounds, posting 1.5 percent year-over-year growth between February 2012 and February 2013, and a liberal 4.3 percent rise in the professional and businesses services sector that includes 35,000 new jobs. Add to that the overall uptick in the global economy (read: consumer confidence) and the market’s inherent strength as an international tourist destination, and all bets are on New York to remain one of the tightest retail markets in the country for the next few years.
New York City boasted an enviable 2.2 percent vacancy rate for all types of retail at the end of first quarter 2013 — an impressive figure when compared to the average U.S. first quarter vacancy rate of 6.8 percent. Quoted rents in New York’s five boroughs also rebounded 12.7 percent year-over-year to $50.90 per square foot on average. This is about three times higher than the nation’s average retail rental rate of $15 to $18 per square foot, and is expected to remain among the best in the nation through 2017. However, the city’s high average doesn’t even come close to the asking retail rents in Manhattan, which can range anywhere from $100 per square foot on a secondary avenue to $3,000 per square foot on Fifth Avenue in the Plaza District. Asking rents in Downtown Manhattan surrounding the Fulton Center and the World Trade Center redevelopment are up 52 percent in the past year. Location, location, location.
One area of concern since the start of 2013 is New York City’s absorption rates. Currently, this figure sits at negative 32,093, whereas the nation as a whole posted modest-but-positive overall first quarter retail absorption of more than 19 million square feet.
However, New York is still buoyed by its strong local consumer market and a steady stream of tourists looking for “must see” retail experiences. The famous shopping streets in Times Square and upper Fifth Avenue, for example, remain strong performers with low supply north of 49th Street and a trend toward tightening rents. Watch out for a new 57,000-square-foot H&M flagship location as well, opening soon at 589 Fifth Avenue.
Overall, the city continues to benefit from comparatively low levels of retail construction. Downtown Manhattan has 350,000 square feet under construction at WTC, where Westfield Group is reportedly reviewing 150 letters of intent for that retail space. Another project underway just outside the city is the 750,000-square-foot Nanuet Mall in Rockland County, slated for completion in late 2013.
Also Downtown, Brookfield Properties is completing a $250 million mall renovation at Brookfield Place. Recent tenant signings include Burberry, Michael Kors and Equinox Health Clubs. Deals like these can only help the local mall sector, which at 17 percent vacant is one of New York’s more under-performing property types.
This is particularly true in comparison to the area’s power center space, which experienced a 200-basis-point year-over-year decrease in vacancy.
Last but not least, rents are escalating along the Broadway corridor in anticipation of the new Fulton Transit Center, a $1.4 billion project that will serve as the transportation retail hub in Lower Manhattan and will include more than 65,000 square feet of retail space in the restored/historic Corbin Building.
The positive buzz generated from new offerings keeps investors engaged and continues a national trend that has seen sales of U.S. urban and luxury retail space double to $8.4 billion between 2011 and 2012. In Manhattan, this figure skyrocketed from $670 million in second quarter 2011 to $3.2 billion in fourth quarter 2012.
Even in the midst of rebound, and a ride that has included more than a few hairpin turns, these are ever-present signs of promise. They underscore New York’s resiliency and they point to the priceless value of its infrastructure, demographics and constancy as a world-class retail leader.
— Craig Slosberg, executive vice president, Jones Lang LaSalle