Bargain Hunting in Manhattan
Dec 1, 2008 12:00 PM, By Marc Hequet
Despite dire forecasts that New Yorkers will reign in their spending for everything but the basics, Spanish retailer Zara is forging ahead with opening a store on Manhattan's Upper West Side. The 15,000-square-foot storefront, located on Broadway between 66th and 67th Streets, the sixth store in New York City for the mid-priced apparel retailer, is set to open next year.
The opening comes at a time when the effects of the Wall Street collapse and a worsening recession continue to accumulate. Manhattan could see a rise in unemployment as a result of cutbacks at investment banks and other financial firms.
The city of New York Office of Management and Budget reports the crisis on Wall Street has gravely damaged the city's finance sector. Before it is over, the agency forecasts 31,000 jobs will be lost in the securities sector and by the end of 2009 in excess of 147,000 private sector jobs lost; nearly 60,000 more than initially forecast. In addition, in October, the Conference Board's consumer confidence index fell to 38.0 — an all-time low and down from 61.4 in September. That means even well-heeled residents are reducing what they spend on apparel and fashion accessories.
At the same time, souring fortunes internationally as well as a newly resurgent dollar are translating into anemic growth projections for the number of international tourists expected to visit New York.
Many retailers that once had expansion plans now are waiting, says Robin Abrams, executive vice president with the Manhattan-based real estate firm, Lansco Corp. “I think there will be more and more buyers looking for good deals,” says Abrams. Since September, New York retail is “pretty much a different world,” says Abrams.
Overall, U.S. retail sales fell 1.2 percent, their sharpest drop in three years in October, according to the Commerce Department. Retailers reporting double-digit same-store sales declines included Abercrombie & Fitch, with a 20 percent drop, and Neiman Marcus and Saks Fifth Avenue, with 17 percent and 28 percent drops, respectively.
Reading the headlines has left the industry wondering what's next, says CB Richard Ellis' senior vice president Gary Trock. The national slowdown in consumer spending, the credit crisis and consolidating financial institutions and their branches are expected to contribute to a rising number of bankruptcies, liquidations and store closings, putting upward pressure on vacancies and downward pressure on rents.
That's precisely why some observers think Zara's push makes a certain amount of sense. Cushman & Wakefield's executive director for retail services in Manhattan, Gene Spiegelman, says the Spanish chain is capitalizing on weak demand. That could put it in a good position when the economy does eventually rebound.
Citywide, asking rents are off 3 percent from a year ago to $129 per square foot, according to the Real Estate Board of New York. Districts with falling rents include the East Side, Third Avenue between 60th and 72nd Streets, down 6 percent to $287 per square foot and the Flatiron on Fifth Avenue from 14th to 23rd Streets, down 7 percent to $276 per square foot.
In the fashionable, high-traffic Flatiron District, Prudential Douglas Elliman's chair of retail sales and leasing, Faith Hope Consolo, is marketing a Fifth Avenue property. Not long ago, ground level in that district might have gone in a blink of an eye. Now spaces can stand empty for weeks or months as newcomers bide their time, waiting for the best offer.
At the property Consolo represents, the landlord is asking $258 per square foot for the 4,500-square-foot ground floor space and larger selling basement.
That's a bargain for the Flatiron District, Consolo says. Asking rent for the full building, including upper-floor office space at $75 per square foot, totals $2.4 million annually, down 7 percent from what the landlord would have sought a year ago. In addition, she says, the landlord offers “generous” rent-free time and will remodel the high-visibility storefront.
Landlord flexibility
As landlords become more flexible, retailers who once wanted to enter the New York market but couldn't make the numbers work may find opportunities as rents falter.
Landlords are helping with build-out costs and reducing rent for up to a year to attract tenants, Abrams says. Landlords may also forego rent increases for two years instead of one. “We have not seen asking rents being significantly reduced, but are being told for the right deal landlords will be flexible and work with the tenant.”
Brokers see signs of a recession. Consolo says, “Landlords are not giving away the store, but they are beginning to offer tenants more enticing deals, [they] are starting to offer four or five months of free rent.”
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