Small retailers, high-end tenants continue to seek space.
The Soho neighborhood in Manhattan, New York City, has become synonymous with shopping and entertainment. Bounded by Houston Street on the north, Layfayette Street in the east, Canal Street on the south and Sixth Avenue on the west, the growing popularity of the area has made it the place to be for retailers.
Just in the last few years, the retail rental rates on Broadway in Soho have increased dramatically. Three years ago, retail rents on the first block on Broadway between Prince and Houston streets were around $200 per square foot, but today even small space on the first and second blocks of Broadway are ranging from $400 to $500 per square foot.
Many high-end fashion retailers are clamoring to open stores in Soho not just for the opportunity for high retail sales, but to have a presence in one of Manhattan’s most sought after markets. Hugo Boss recently signed a substantial lease on Broadway between Prince and Spring streets, which in turn has prompted other major fashion retailers to seek space in the area. Many top European designers are also beginning to look for space in the Soho area.
The Soho area is not just attracting small shop luxury retailers, there has also been speculation that large high-end fashion tenants such as Barney’s are also looking into space within the neighborhood. However, aside from luxury fashion retailers, every type of retail tenant wants to be in Soho. Fashion designers, big-box retailers and even retailers that have stores on Madison Avenue in the 60s want to be in Soho. Hollister, a lifestyle brand by Abercrombie & Fitch Co., is opening up a mega-store on the corner of Broadway and Prince streets, which promises to further change the dynamic of the neighborhood and the retail market in Soho.
Despite the neighborhood’s popularity, the Soho retail market has its share of disparities, making it a tricky place to navigate for retailers. The retail sector in Soho is a completely different animal from the rest of Manhattan since the retail rental rates vary from block to block. The first and second blocks on Broadway between Prince and Houston streets are very strong; however, south of Bloomingdale’s, which is the third block, the retail market changes because the foot traffic is not fully there yet, so tenants will find a drop in rental rates.
Retail rates vary not only from block to block, but on each and every street in this dynamic neighborhood. A tenant will find a different retail value on Broadway between Houston and Prince versus between Prince and Spring streets. In addition, Spring and Prince streets have a completely different retail value than Mercer, Greene or Wooster streets. However, the areas with lower rental rates are by no means week. Wooster Street, which is probably considered one of the weakest retail areas in Soho still commands around $100 to $150 per square foot.
Although the foot traffic has not reached the same fever pitch in all areas of Soho, many landlords and tenants are hedging their bets that the foot traffic along Broadway will soon expand down to Canal Street and even past it, resulting in the same astronomical exposure and rents. Several tenants that are unable to find the right kind of spaces within the first few blocks of Broadway are taking space further south of Bloomingdale’s.
That being said, the aforementioned disparity in rents is quickly narrowing. As the demand continues to grow, the rental rates south of Bloomingdale’s have gotten higher as tenants lease big and small spaces. In addition, West Broadway may not generate the same amount of foot traffic found on Broadway, but the street is beginning to garner more and more attention from retailers and investors. I recently sold five buildings on the corner of West Broadway and Prince Street, which is fast becoming a prime retail corner with anchor tenant, Max Mara.
Many tenants are looking for space on West Broadway simply because it offers a completely different type of retail market. The area has been geared towards the very high-end art galleries and certain fashion stores that serve a different type of clientele, unlike Broadway, which caters to everybody. Some tenants only want to be on Broadway while some want to be on Prince or Spring streets because they feel that the area caters to a higher end clientele than the commercial masses on Broadway.
Office space in Soho has become a hot investment commodity as well. Right now office space in some instances is commanding $55 per square foot. More residential and hotel developments are also moving into the area. Soho is attracting tourism and corporate clients, but there is a lack of upscale hotels in the area to meet the demand. I recently brokered the approximately $33 million sale of the MoonDance diner site on 6th Avenue and Grand Street. The new owner plans to build a boutique hotel on the site, about 65,000 square feet.
The development of boutique hotels and residential space is increasing, but there is a lack of land in Soho, so if a buyer finds the right site, they might have to pay a bit more than they would elsewhere in Manhattan. Although the cost of land is higher in Soho, the reward is higher as well.
As Soho grows in popularity, the retail sector will just keep getting better and better and down the line it will be an equivalent of Madison Avenue between 57th and 72nd streets. Retailers want to be here, office tenants want to be here, and more hotels and high-end residential condos are coming to the area, so the future remains bright for Soho.
Submitted by Ivan Hakimian of Itzhaki Properties