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New York City Retail Market Enters Phase of Discovery

Taylor Williams — Thu, 15 Dec 2022 13:12:23 +0000

By Taylor Williams The New York City retail market is currently functioning like an episode of The Price Is Right. Developers, investors, brokers and operators are all trying to attach fair values to rents and sales prices for spaces of all sizes and submarkets. But after a tumultuous period marked by a global pandemic and record inflation, followed by a string of severe interest rate hikes, accurately assigning those numbers is easier said than done — at least in some submarkets. According to data from JLL, at the end of the third quarter, the average rent throughout New York City was $290 per square foot, down 5.3 percent year over year. That figure represents an improvement from the second quarter of 2022, when rents posted a 12 percent decline on a year-over-year basis. In addition, JLL’s data shows that 58 new leases were signed in the third quarter. While that figure marks a decline of 13 percent from the second quarter, it also constitutes an increase of 7.4 percent on a year-over-year basis. These numbers suggest that after retail leasing and sales completely stagnated in 2020 due to an unprecedented public health crisis, the market corrected sharply in 2021 and…

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Looming Infrastructure Investments in New York City Offer Hope for Job Creation, Middle Class

Taylor Williams — Tue, 01 Nov 2022 11:43:01 +0000

By Lou Coletti, president & CEO, Building Trades Employers Association In the 1930s, the United States was in the throes of the Great Depression. Millions of people lost their jobs, and savings were obliterated overnight. President Franklin Delano Roosevelt seized the opportunity to bring the country back from the brink of economic collapse, creating the Works Progress Administration to put 8.5 million Americans to work building new schools, roads, bridges and water systems. In 2020, the country faced a similar shock to the system as COVID-19 locked down our cities, shuttered businesses and sent entire populations into isolation for months on end, only to contend with a maze of rules and restrictions as the economy reopened. Almost three years later, major metropolises like New York City have an unprecedented opportunity to rebuild both the physical infrastructure and social fabric of their respective regions. Much like in the days of the Great Depression, the construction industry has a key role to play in rebuilding our physical and social infrastructure. This time, however, it’s imperative that we prioritize equity, not only within individual projects but also within the industry at large. The combination of economic upheaval caused by COVID-19 and the…

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Net-Lease Tenants in New York Can Appeal Property Tax Assessments

Taylor Williams — Mon, 26 Sep 2022 11:47:00 +0000

By Jason Penighetti, attorney, Koeppel Martone & Leistman LLC In a far-reaching decision, New York’s highest court has affirmed the rights of tenants under a commercial net lease to protest assessments and reduce their real property tax burden. The ruling reversed a State Supreme Court dismissal of a petition on the grounds that only a property’s owner can file an administrative grievance with the Board of Assessment Review. In a net lease, the tenant is responsible for paying real estate taxes and other expenses stated in the lease. In the matter of DCH Auto vs. Town of Mamaroneck, the Court of Appeals in June 2022 published a unanimous decision stating that tenants contractually obligated to pay real estate taxes and authorized to protest assessments may file tax appeals even when they do not hold title to the underlying real estate. Restoring a Precedent DCH Auto operated a car dealership in a net leased property in Mamaroneck, New York. Its lease with the owner required DCH to pay the property’s real estate taxes in addition to rent. Commercial tenants with this type of lease commonly file tax appeals to correct excessive tax bills and mitigate operating costs. These occupiers include retailers…

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New York City’s Retail Investment Market is Poised for Greater Activity

Taylor Williams — Mon, 01 Aug 2022 11:44:25 +0000

By Brent Glodowski, director, capital markets group, Avison Young Conditions are looking up for retail real estate investment in New York City. In one sense, “up” is the only way to go for a sector that has been bumping along the bottom of a trough. But with inflation tempering investors’ recent fascination with multifamily and industrial properties, retail also offers opportunities to acquire price-corrected assets when those other property types hover near cyclical peaks. Retail’s Head Start New York’s retail real estate market was already suffering from changing consumer tendencies when COVID-19 arrived and thrust many retailers and their landlords into a full-blown crisis. Even when government-ordered shutdowns eased, remote work policies drained office buildings of the customer bases that had supported swaths of restaurants, shops and entertainment businesses. Home-bound workers became a redistributed daytime population, shifting demand for meal delivery and other retail to new areas. Hundreds of small businesses went under, leaving vacant storefronts in their wake. Some retailers altered business plans to serve shifting customer bases that had developed new, pandemic-influenced consumption practices. Landlords with vacancies to fill turned to traditional strategies, such as relocating tenants from out-of-the-way spaces to fill their most visible storefronts. Property owners…

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Luxury Retail Along Manhattan’s Madison Avenue Shifts from Rebounding to Thriving

Taylor Williams — Fri, 01 Jul 2022 11:00:47 +0000

By Joe Aquino, president, JAACRES When Barneys New York department store closed in 2020, we saw a dramatic relocation of luxury retail on Madison Avenue to the south, apparently with a common goal of establishing better proximity to East 57th Street. Prior to that event, many luxury brands enjoyed a shop within a shop at Barneys, plus another store on the corridor, usually further uptown. Prior to the COVID-19 pandemic, this stretch of Madison Avenue was so tight for space that we saw East 59th Street, a major side street, securing tenants like Dior, Bathing Ape and Balmain. During the pandemic’s lockdown phases, retail vacancy rose dramatically, even in the most desirable areas. Now, post-pandemic, we see spaces along Madison Avenue getting filled by new and established luxury retailers ready to make a statement. Here are some of the key transactions that have either been recently completed or are in progress: Givenchy just left its cozy quarters at 749 Madison Ave. at the southeast corner of 65th Street to take the southeast corner at 625 Madison Ave. Versace will open in Givenchy’s place this fall. Wolford, a maker of luxury seamless tights, took the Lalique store at 607 Madison Ave.…

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Food & Beverage Leads New York City’s Retail Comeback

Taylor Williams — Thu, 16 Dec 2021 12:30:22 +0000

By Taylor Williams The fervent desire that many Americans have to make up for lost eating, drinking and socializing time has New York City’s food and beverage (F&B) market roaring back to life, prompting tenants to revisit growth plans, landlords to aggressively market their spaces and the brokers who represent the two sides to sharpen their pencils. In mid-August, New York City Mayor Bill de Blasio announced that residents wishing to eat or drink inside a restaurant or bar would have to show proof of receipt of at least one dose of a COVID-19 vaccine. Yet after two months of seeing this policy enforced, local brokers say the mandate has had a minimally adverse impact on business. Consequently, leasing activity, which began rebounding a year ago, is now accelerating in the F&B space. According to data from CBRE, F&B deals accounted for 30 percent of all new retail leases executed in New York City between March 2020 and August 2021. The company’s research team also identified 65 F&B leases throughout New York City in 2021 alone, representing about 33 percent of the total deal volume. Specifically within Manhattan, there were 24 leases executed for F&B concepts in the third quarter…

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Affordable Housing Lenders, Investors in New York City Face Underwriting Challenges

Taylor Williams — Tue, 02 Nov 2021 11:17:48 +0000

By Taylor Williams For lenders and investors in New York City’s affordable housing market, accurately underwriting rent growth, operating costs and long-term asset appreciation can be a tricky proposition in today’s economic environment. To be fair, buyers and financiers of affordable housing properties in many U.S. markets are being forced to adjust and recalculate their metrics due to forces they can’t control. Yet macroeconomic factors like rising inflation, which puts heavy pressure on construction and operating costs, can often seem more acute in the Big Apple, where the cost of living and doing business is already higher than virtually anywhere else in the country. Economic Drivers The labor and materials costs for the renovations and rehabilitations that many affordable housing communities need are rising. According to Producer Price Index data supplied by the U.S. Bureau of Labor Statistics, for the month of August, the latest report available at the time of this writing, the aggregate cost of construction materials had risen by 19 percent from August 2019. Much of this rise in materials costs is due to disruption of the global supply chain via COVID-19, causing developers of much-needed housing stock to incur heftier budgets and longer construction timelines on…

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Student Housing Sector Leads New York City Multifamily Market’s Comeback

Taylor Williams — Thu, 08 Jul 2021 11:45:54 +0000

By Mark Fogel, founder, ACRES Capital Despite the pandemic-related uncertainty that dominated the markets in 2020, the student housing sector consistently displayed strong pre-lease occupancy rates among properties under construction, suggesting that the asset class would be well-positioned to hit the ground running in 2021. According to RealPage Analytics, students, encouraged by the prospect of fully reopened campuses, fueled a nearly 10 percent nationwide increase in pre-lease occupancy at off-campus housing between March and April of this year. This data in particular seems to support improvement for the student housing sector overall. Research organization RealPage has tracked student housing occupancy rates at 175 major universities across the country, a sort of barometer for the larger industry. As of March, the company’s data showed that 59.6 percent of beds at those universities were preleased for the fall 2021 semester. While that figure is still 200 basis points below the March 2020 level, it seemingly speaks to students’ preference to get back to living on campus. And while this is good news for operators and developers, the resiliency of the student housing market is bringing forth an unintended, but positive effect on one of the hardest-hit rental markets in the country: New…

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New York City’s Pandemic-Related Property Tax Problems Persist

Taylor Williams — Tue, 29 Jun 2021 11:13:51 +0000

By Joel Marcus, partner, Marcus & Pollack LLP What happens when an irresistible force meets an immovable object? The longstanding physics conundrum encapsulates the situation in which New York City property owners currently find themselves, and for better or worse, they’re about to discover the answer to the age-old question. City government has squeezed increasing sums of property taxes from its real estate stock in each of the past 25 years, but the pandemic is changing everything. The basic fact is that 53 percent of New York City revenues come from real estate taxes. Fueled by rising rents that are tied to high costs of new construction, the city property tax base has grown and enjoyed record tax revenues in recent years. Total real property tax revenue was almost $30 billion in 2020, according to the city’s annual property tax report. Historically speaking, no major event in recent memory has been responsible for a pause in the year-over-year tax increases — not the Financial Crisis of 2018, nor Hurricane Sandy, nor even the events of September 11. It seems as though only a global pandemic has this particular power. COVID-19 has affected every element of New York City’s economy, but…

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Opportunities Abound for Buyers and Sellers in New York City’s Multifamily Market

Taylor Williams — Tue, 22 Jun 2021 11:06:23 +0000

By Lev Mavashev, founder and principal, Alpha Realty Last year in 2020 and even now well into 2021, the COVID-19 pandemic has many New York City property owners feeling like deer in headlights. Should I push forward? Take a step back? Or should I just freeze and brace for impact from the worst disaster to strike the world in living memory? While little is certain in these uncertain times, for New York’s multifamily owners considering their future beyond 2021, values might drastically be impacted by the following factors. Rising Property Taxes New York will never move forward unless its real estate industry moves forward. Next to finance and, increasingly, big tech, the industry is the biggest driver of the state economy, and its 12-month enforced hiatus has cost the state $1.6 billion in lost tax revenue. The state can’t just print money to make up that shortfall, so it is doing one of the only things that is certain in life: issuing taxes. From hikes in property taxes to capital gains, personal income to corporate tax, both the city and state are creating a clear roadmap to recouping what’s been lost. Property taxes will definitely be going up for the…

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New York City Must Be A Leader in Reimagining Retail in the Post-Pandemic World

Taylor Williams — Tue, 15 Jun 2021 11:18:44 +0000

By James Nelson, principal, head of Tri-State investment sales, Avison Young It probably won’t be a shock to learn that in the aftermath of COVID-19, we are going to need to reimagine retail. Even before the pandemic hit, retail vacancy was becoming more prevalent throughout New York City. Now more than ever, landlords and retailers are going to need to think outside the box to fill vacancies and allow retailers to survive. A recent survey among members of the International Council of Shopping Centers (ICSC), which consists of landlords, tenants and service providers, found that 57 percent of retail professionals believe that the economy will improve over the course of the next year. That being said, 73 percent wanted to see businesses open again in their state. A key question involves when we could expect to return to the in-person conventions and events that our industry is known for. ICSC is famous for its annual conference in Las Vegas that draws over 30,000 people. It’s a chance to catch up with friends and business contacts in a fun setting while also being able to accomplish dozens of meetings over a few days, as everyone is in the same place. Industry…

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New York City Industrial Market Held Strong in 2020, Has Promising 2021 Ahead

Taylor Williams — Tue, 08 Jun 2021 11:46:42 +0000

By Jakub Nowak, senior vice president investments, Marcus & Millichap Last year’s COVID-19 lockdown took a major toll on parts of New York City’s real estate market. The city’s industrial sector, however, fared relatively well compared with other asset classes. Although dollar volume for outright industrial sales transactions over $1 million fell by almost 25 percent from $1.75 billion in 2019 to $1.35 billion in 2020, the average price per square foot over the same period held flat at about $445 per square foot. Meanwhile, capitalization rates for industrial properties in 2020 continued their steady downward trajectory, compressing further from 4.7 to 4.4 percent on a year-over-year basis. Importantly, these 2020 sales numbers do not account for the $800 million-plus of institutional capital that poured into local industrial real estate by way of partial interest sales. Notable transactions included a joint venture between Hackman Capital and Square Mile Capital deploying just under $375 million for a majority interest in Queen’s Silver Cup Studios; GIC obtaining a 25 percent stake in Sunset Park’s Industry City for $330 million; and a joint venture between Madison Realty Capital, Meadow Partners and Acadia Realty acquiring a share of Sunset Park’s Liberty View Plaza for…

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Retail Inventory Ticks Upward in New York City, But Low Rents Should Draw Tenants Back

Taylor Williams — Tue, 25 May 2021 11:58:12 +0000

By Pierre Debbas, Esq., partner at Romer Debbas LLP While headlines have primarily focused on impacts to small businesses, contrary to popular belief, large retailers and national chains have not been immune to the COVID-19 pandemic. Restaurant and hotel chains, movie theaters, gyms and other experiential retailers have shuttered locations across the country. Just this past July, legacy retailer Neiman Marcus closed its Hudson Yards location due to heavy COVID-19 impacts. The big box retailer also faced store closures in other locations, such as Florida and Washington, due to a high loss of revenue. These large, vacant retail spaces have created problems, especially in markets ike Manhattan. While there are some moves in play, such as Home Depot taking over the Bed Bath & Beyond’s midtown location, or Target setting sights on the former 86th Street outpost of Barnes & Noble, the reality of vacant spaces – large and small – is apparent throughout the city’s prime retail hubs. When looking forward, landlords will have to consider subdivisions and repurposing of big box spaces to make leasing viable, potentially making way for smaller-concept retailers and the return of mom-and-pop shops. Essentially, the question remains: What is the true absorption rate…

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NYC Retail Market Embraces Hard Change on the Fly

Taylor Williams — Tue, 12 Jan 2021 12:39:17 +0000

By Kristin Hiller and Taylor Williams Retail and restaurant reopenings this fall gave a modest boost to the New York City retail market in the third quarter. But even with the easing of some operational restrictions, business activity remains diminished in a city known for its hustle and bustle. Both retail tenants and landlords have had to regroup and quickly adapt to the curveballs thrown at them by COVID-19 over the past nine months. While retail and restaurant users in some areas are finding more success than others, the market as a whole has been characterized by falling rents and a pronounced shift to delivering goods, services and experiences through different channels. In order to get a better handle on current market conditions and the outlook for 2021, Northeast Real Estate Business spoke with retail real estate experts in New York City, Northern New Jersey and surrounding markets. Submarket Fortunes Vary Without question, the city’s retail market is still suffering from a lack of office workers and a reduced tourist population as a result of COVID-19. According to recent data from CBRE, through September, the average office re-occupancy rate in Manhattan was 11 percent, meaning that roughly 89 percent of…

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Investors Like Fairfield, Westchester Counties

Taylor Williams — Wed, 08 Jan 2020 12:58:25 +0000

With a unemployment rate of 3.9 percent, strong demographics, transportation that provides direct access to New York City and a highly skilled workforce, Westchester County is seeing steady investor interest across all major property types. We have seen significant interest from institutional investors, including pension fund advisors, insurance companies and REITs. This same buyer class has continued to underwrite increased rent growth in the more urban markets of Westchester County — Yonkers, New Rochelle, White Plains — ranging from 2.5 to 4.5 percent depending on occupancy and development pipeline within the local submarkets. This investor group is targeting yields of 5.5 to 6.5 percent in return on cost metrics and purchasing existing assets for cap rates ranging from 4.4 to 5.3 percent, depending on the age, location and upside of the transaction. That spread has historically been between 150 and 200 basis points. Given the need to put capital to work, the spread is now closer to 100 basis points, reflecting more aggressive pricing for the market. This trend is evident in the Westchester market with new construction projects in the transportation-oriented towns. In addition, interest rates have helped keep investors motivated to buy. Low yields have helped to keep…

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Brooklyn and Queens: Worthy Alternatives to Overpriced Manhattan Office Market?

Taylor Williams — Fri, 13 Dec 2019 13:14:56 +0000

New York City is one of the priciest office markets in the world, with Manhattan housing the core business district of the city. The borough has always been the place to be — the ultimate live-work-play destination that houses the big corporations and the talent that recruiters look for. Overall, office asking rents in Manhattan fell only slightly during the third quarter to $74 per square foot, per Cushman & Wakefield, while rents in some submarkets continued to rise. In highly appealing office clusters like Hudson Yards or the Plaza District, asking rents often exceed $100 per square foot, meaning small- to mid-sized tenants are often priced out of these areas. Historically, areas outside Manhattan have not been as desirable for office users. Yet with rising housing prices, many New Yorkers have been priced out of the borough, forcing them to either downsize or get off the island. Developers have taken advantage of this trend and started investing in residential projects in Brooklyn and Queens in order to attract homebuyers. Businesses soon started to take notice, and many office-using tenants have since migrated or expanded into the outer boroughs, primarily Brooklyn and Queens. Small Leases Drive Brooklyn Brooklyn has always…

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Price Escalation in Other Asset Classes Pushes Investors Toward NYC Retail

Taylor Williams — Wed, 11 Dec 2019 13:08:00 +0000

The value proposition for retail investment in New York City is reaching new highs amid an arguably overvalued office market and a multifamily market that continues to grapple with onerous new regulations. Rapid price escalations in both of these sectors have played an integral role in spurring additional investor demand for retail as of late. Analysis of Avison Young’s third-quarter property sales report for Manhattan revealed a rare opportunity, as the average price per square foot for retail properties has now dipped to $1,449, nearly 40 percent below the trailing four-quarter average. In addition, deal volume was also down nearly 40 percent below the trailing four-quarter average, clocking in at just $175 million. The glory days of 2014, when the market eclipsed $3.5 billion in sales volume, are well behind us. “For Rent” signs now cover swaths of the hardest-hit corridors of Broadway in SoHo, Third Avenue on the Upper East Side and Canal Street. What’s The Upshot? All is not lost, however, in the world of retail investment. In fact, it’s very much the opposite. The legislative constraints putting pressure on the multifamily investment market do not currently exist in the retail world. And with retail pricing down significantly…

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Developers Adapt to Tight Office Market in Northeast

Taylor Williams — Wed, 04 Dec 2019 12:48:39 +0000

Office vacancies are falling across the big metros of the Northeast as robust user demand outpaces the supply of new construction. Deliveries in the last year have primarily been limited to Class A, build-to-suit properties and mixed-use developments. Meanwhile, office tenants are seeking high-end amenities at favorable prices. Nationally, the office vacancy rate stood at 16.8 percent in the second quarter, up slightly from 16.6 percent a year ago, according to real estate research firm Reis. Net absorption for the quarter totaled 3.2 million square feet, down from 3.9 million square feet a year ago. The average asking rent was $33.79 per square foot, up 2.2 percent on a year-over-year basis. Approximately 11.1 million square feet of office space was under construction at the end of the second quarter across Philadelphia, New York and Boston, according to CoStar Group. Helped by approximately 8.3 million square feet of absorption in the second quarter, the average vacancy rate across all three markets was 8.1 percent. Rather than undertake costly new ground-up construction projects, many developers are choosing to redevelop existing assets and efficiently incorporate office space into mixed-use projects. Coworking tenants occupied 54.2 million square feet of office space nationally at the…

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Industrial Development Shifts Westward From Port

Taylor Williams — Wed, 02 Oct 2019 12:09:49 +0000

Demand for industrial space is roaring throughout the submarkets surrounding the Port of New York and New Jersey, propelled by the port’s handling of a record amount of cargo thus far in 2019. As a result of the healthy demand, as well as more product coming in and out of the port, landlords are enjoying positive rent growth accentuated by a limited supply of quality industrial space. The port experienced record growth in cargo volume handled during the first six months of 2019, according to internal data from the organization. The number of 20-foot equivalent units (TEUs) handled by the port has already exceeded 3 million for the year and surpassed 611,000 in June alone. This figure represents an all-time record for the port during the first half of the year, enabling it to surpass the Port of Long Beach for the first time in 20 years. Increasing amounts of inventory coming in and out of the port translates to greater demand for industrial space to store, process and ship product. But the port submarket has but a meager supply of real estate to meet the demand. Due to a limited space available for lease, the industrial submarket experienced negative…

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Retail Rent Picture Varies Greatly Across New York City Submarkets

Taylor Williams — Wed, 21 Aug 2019 12:09:22 +0000

Retail leasing activity across New York City accelerated during the second quarter of 2019, but the market continues to see vast discrepancies in supply-demand balances across various submarkets. In certain parts of Manhattan, year-over-year asking rents declined by double-digit percentages, according to the Real Estate Board of New York (REBNY) Spring 2019 Report. Midtown East, for example, saw its average asking rent drop by 22 percent from $3,900 per square foot to $3,050 per square foot during this time period. The corridor between 42nd and 49th streets experienced similar activity, sliding 20 percent from an average asking rent of $1,000 per square foot to $800 per square foot. Historically high vacancy and low absorption rates are behind the negative rent growth. Due to the high cost of doing business in New York, landlords have also struggled to backfill spaces vacated by tenants that were victims of the e-commerce world. As a result, property owners are being forced to bring down their tenant improvement allowances and integrate more flexibility into their leases, primarily in the form of shorter lease terms to stimulate cash flows. Midtown East had approximately 100 vacant retail spaces totaling more than 500,000 square feet at the end…

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