Job growth in New York City is expected to reach a new high in 2015 with the addition of 92,500 jobs. This spike in employment will bode well for retail owners. Drawn by the strong economy, several retailers are expanding in the city, including Lowe’s, which already has two locations in Brooklyn and one in Queens. In the second half of 2015, Lowe’s will open its first two stores in Manhattan. Apple plans to open shop in Brooklyn; they’ve signed a long-term lease for a 20,000-square-foot store at 247 Bedford Avenue at the corner of North Third Street in Williamsburg.
As retailers ramp up their presence in the five boroughs, the vacancy rate is going to reach a new multi-year low. Vacancy for retail properties in 2015 will fall to 3.9 percent on net absorption in excess of 2.8 million square feet. Tightening vacancy will allow for operators to increase asking rents for the fourth consecutive year and will encourage builders to start new projects.
Currently, builders are on track to deliver 2.5 million square feet of retail space in 2015, increasing stock by 1.2 percent. The most notable project scheduled for delivery is the Westfield World Trade Center, a $1.4 billion World Trade Center retail complex in Manhattan, set to open later this year. The property will add more than 300,000 square feet of retail space to existing stock.
In 2016, several other large projects are set to be completed, including the Fulton Center in Brooklyn, which is intended to improve access to and connections among the New York City subway services, stopping at the Fulton Street station and the upcoming World Trade Center Transportation Hub. Also set for completion is Empire Outlets on Staten Island. It is to be constructed near Saint George Terminal and Richmond County Bank Ballpark, in the St. George neighborhood.
The retail investment climate will be primarily determined by sellers as interested buyers exceed available listings. The anticipation of healthy appreciation and strong rental incomes will keep many owners on the sidelines. However, extremely tight cap rates and heightened investor demand will tempt some to test the market.
Cap rates for best-in-class properties can dip well below 5 percent. Appropriately priced assets can expect multiple competitive offers from an array of potential buyers. Overall, rents will continue to post healthy gains while tight vacancy places upward pressure on asking rents. Many sellers will choose to redeploy capital in the outer boroughs in order to achieve their desired returns at prices that are discounted from those in Manhattan and downtown Brooklyn.
— By Preet Sabharwal, Associate Vice President Investments, Marcus & Millichap. This article originally appeared in the March/April 2015 issue of Northeast Real Estate Business magazine.