Real estate experts continue to keep a close eye on the Manhattan retail market in 2018. Having wrapped up 2017 with challenges and opportunities for landlords and tenants alike, it appears the biggest strides toward adjusting to new conditions are behind us, though further rent adjustments are never out of the mix.
At year-end 2017, average asking rents across Manhattan’s 16 main retail corridors declined by 18.4 percent, compared to those from year-end 2016, while availabilities ticked up slightly. Leasing velocity was strong in 2017 with 2.6 million square feet of transactions closing during the year, posting a year-over-year increase of 8.2 percent. Food and beverage tenants dominated the market in terms of deal volume, inking 172 leases (the most in Manhattan) at year-end 2017, which encompassed nearly 556,000 square feet. The apparel industry also posted strong numbers in 2017, leasing 459,200 square feet of space across 91 deals.
Nicole LaRusso
Director of Research & Analysis, CBRE Tri-State
2017 data shows that SoHo was the most active neighborhood in terms of square footage leased (approximately 227,000 square feet) and the number of closed deals (43). The neighborhood outpaced the runner up, Midtown West, by more than 60,000 square feet. After suffering from consistently high vacancy rates, SoHo is continuing to adjust rents and lease terms in order to re-establish itself as New York City’s go-to shopping destination. The aforementioned data paints a promising picture for the neighborhood. Its ranking as the most active neighborhood for leasing is due in part to the rent adjustments seen year-over-year with rents along Broadway between Houston and Broome Streets dropping by 16.4 percent, down to $588 per square foot, between fourth quarter 2016 and fourth quarter 2017. The largest drop in asking rent was a decrease of 18.7 percent, seen along Spring Street between Broadway and West Broadway, where the asking rent posted at $828 per square foot at the close of fourth quarter 2017.
With large blocks of retail space sitting vacant in SoHo, landlords and tenants are becoming more creative and flexible in negotiations. For example, high-end retailers are opting to sign short-term leases in the neighborhood. During the first quarter of 2018, a luxury French retailer was reported to have signed a one-year lease on Greene Street, following a similar tactic implemented by a high-end Italian brand that inked a two-year deal on West Broadway in late 2017.
Short-term retail deals also extended beyond SoHo. In 2017, short-term deals — quantified as deals with lease terms less than three years — made up more than 18 percent of leases in the market. That’s more than double the percentage of short-term leases signed in 2016. Of these deals, 60 percent were for apparel, accessories or jewelry retailers. SoHo and Upper Madison Avenue, the latter of which saw rents reach $1,286 per square foot in 2017, each had six short-term leases signed in 2017.
The move to short-term leasing reflects a cautious approach, in which tenants are testing the market before making long-term commitments. This trend is likely to continue as long as ample availability gives tenants leverage over landlords in negotiations.
2017 was an interesting year for Manhattan’s retail market — though rents continued to fall, the outlook for the market did drum up some positivity from real estate experts. While the business of retail continues to evolve, both national and local drivers that affect consumer spending were relatively healthy at year-end, pointing to the underlying strength of New York City retail.
— By Nicole LaRusso, director of research & analysis, CBRE Tri-State. This article first appeared in the March/April 2018 issue of Northeast Real Estate Business magazine.