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As we come off the high of the holiday season and take a look at how New York retail fared throughout the year, we can expel a deep sigh of relief knowing that the Big Apple continued to recover faster than the national average and has a bright outlook for 2013.
While New York City’s retail recovery has been slow and steady, the year closed on a positive note with total retail vacancy rates hovering around two percent. New York City continues to be a one of the most vibrant and growing retail markets in the world as the local economy has seen steady gains in private sector hiring that outweigh cuts in government employment.
While Hurricane Sandy dented the recovery, the city rebounded almost immediately with Black Friday weekend sales exceeding expectations. New York’s resiliency and continued low unemployment bodes well for the Big Apple’s continued success.
Big Apple Big Deals
The New York retail market saw some notable large deals in 2012 including H&M’s new 57,000-square-foot lease and Cartier’s 50,000-square-foot renewal on Fifth Avenue. This coupled with the unprecedented 200,000 square feet available on Fifth Avenue solidifies the opportunity for a successful 2013. While the market has seen some major brand-name transactions, it’s actually the volume of smaller tenants pushing the recovery needle. Deals in the Meatpacking District, Soho, Midtown and Upper East Side and Upper West Side markets continue to feed the insatiable appetite these submarkets have for new retail concepts, particularly the quick-service restaurant (QSR) category. For instance, Eric Kayser, the French bakery, is a new participant in the U.S. market, signing three deals and opening to long lines of patient fans in 2012. Five Guys, Potbelly Sandwich Works, 16 Handles frozen yogurt and Pret A Manger also signed multiple deals and continue to enjoy success in the New York market.
In 2013, we expect the continued trend of international retailers looking to gain a foothold in the U.S. by establishing themselves in coastal cities such as New York. New retailers expected to open their doors in New York in 2013 are Aritzia, Diesel and Top Shop to name a few. Additionally, retailers that are doing well will continue to acquire new locations in prime real estate in an opportunistic, but strategic fashion.
Planned store openings across the country are at a four-year high with dollar stores and restaurant chains leading the pack, and we expect this to hold true in New York City. However, the trend to smaller store footprints will partially cancel out net absorption.
Rents Inch Up
Rental rates continue to climb in New York; however, we expect a plateau to be reached and the market to balance in mid-2013. This is in response to overinflated rents of yesteryear and recent adjustments. Some submarkets of NYC have seen aggressive growth with respect to the rental rates, specifically Fifth Avenue and 34th Street. This higher rent request has yet to see the support of the retail community as landlords’ asking rents are higher than ever and retailers are not stepping up and paying them — yet.
The New York City retail market outlook is bright although we still hold tight a bit of caution due to the unstable global economy, U.S. fiscal issues and wavering consumer confidence. We are optimistic that the market’s strong fundamentals will help deliver a strong year for retail in 2013. Time will tell.
— Paul Berkman, executive vice president, Jones Lang LaSalle Retail