NEW YORK —The retail vacancy rate for Madison Avenue in New York City has made some big moves in the past two years, dropping from double digits to below 2.5 percent as luxury and fashion brands move into the market. This high-street retail location has long been known for stiff competition, not only among consumers vying for the latest haute couture, but also among retailers competing for prime space and limited consumer dollars.
With a record-low retail vacancy rate on New York’s prime streets like Fifth Avenue, retailers are now expanding throughout the city as stronger growth prospects become increasingly attractive and obtainable. New York City contains nearly 57 million squarefeet of retail space, the slimmest inventory of any major market in the United States. Currently, there are only 670,000 squarefeet of new supply under construction, leaving retailers looking for the “next” neighborhood.
“Retailers are growing in a calculated and cost-effective way by getting creative with store footprints and locations,” says Michael Hirschfeld, senior vice president of retail tenant service for Jones Lang LaSalle (JLL). “While their appetite for the best sites remains strong, the sought-after high-street space in the city will be limited through 2017, pushing retailers into new areas.”
JLL’s retail experts point to a few emerging New York City submarkets that are catching the eye of domestic and increasingly European brands looking to expand.
· Eataly, the mega Italian food market, is located off of Madison Square Park and is one the most visited tourist destinations in New York City. As a resut of Eataly’s presence and that of several boutique hotels, the pedestrian foot traffic in NoMad has dramatically increased due to its prime location between Madison Square Park and the Empire State Building. The market’s average asking rents have jumped north of $200 per square foot, with full-service restaurants and grab-and-go establishments including The Smith, 5 Napkin Burger, Num Pang and Hill Country Fried Chicken opening.
· Institutional investors are aggressively pursuing retail acquisitions on Canal Street in hopes of driving out discount retailers and attracting retailers similar to those already on Broadway. This activity has brought the up-and-coming street’s rents average upwards of $300 per square foot.
· Institutional landlords are buying up all the real estate along Fifth Avenue from 42nd to 48th Street, popular with retailers because they can pay a third of the rent and still have heavy pedestrian foot traffic. Examples of this shift include Joe Fresh, Urban Outfitters, Oakley and H&M migrating just south to save significantly with average rates ranging $600 to $1,200 per square foot.
· The revitalization of the World Trade Center and the surrounding area will afford a diverse group of retailers and restaurateurs an opportunity to expand into the once again thriving Financial District. Westfield’s development of the retail space is a prime example of how to respectfully integrate a shopping center within a major tourist/visitor destination and a major office complex.
While trendy, budding areas of the city will continue to attract opportunistic retailers, and the following submarkets will remain top targets for more mainstream expansions efforts:
· After many years of store openings, SoHo has achieved a critical mass of retailers. The area’s core luxury product and emerging brands attract tourists on foot and residents alike, and asking rents range from $400 to $1,200 per square foot.
· Madison Avenue from 59th to 72nd Street is the purest luxury shopping destination in New York; it feels like a curated collection of the retail elite. Asking rents range from $800 to $1,200 per square foot.
· The fast fashion district, 34th Street to Herald Square,is home to mainstream and big boxretailers and has asking rents ranging from $600 to $1,000 per square foot. H&M just signed their largest lease in the world,at 63,000 square feet, and the No. 1 Victoria’s Secret and Gap stores in the country are located in this district.
· Fifth Avenue from 49th to 59th Street remains aprestigious and highly-sought after address. The area is just steps from Rockefeller Center and presents a primary opportunity to push branding. Asking rents are $3,000 per square foot and more.
· Crucial global exposure and 24/7 store access makes Times Square a top locale,with asking rents ranging from $2,000 to $3,000 per square foot. Even the new H&M store stays open until 1 a.m.
With more confident U.S. consumers comes more confident international retailers eager to expand intothe market. New York City has already attracted scores of international merchants, and JLL Retail expects European retailers to pursue opportunities in the market to advance their profitability and margins.
Cross-border investment is more palatable for retailers that have reached saturation in their native markets and are chasing diversification and growth. New York’s extremely dense customer base offers expanding retailers access to the breadth and depth of the American consumer they’re seeking.
“More than $9 million of retail sales happens every minute in the U.S., and total retail sales in New York City exceeded $70 billion last year,” says Paul Berkman, senior vice president of JLL Retail. “There is great temptation for international brands to access the huge pool of potential new customers in the market. So far this year, we’ve conducted several tours with European luxury and boutique retailers looking to land space in New York.
“Retailers will continue to use New York to test and understand the receptivity of their offerings across borders,” he concludes.
— Staff report