Bargain Hunting in Manhattan
Dec 1, 2008 12:00 PM, By Marc Hequet
In recent months, a dozen retail vacancies have appeared, says Henry Goldfarb, executive managing director of Santa Ana, Calif.-based broker Grubb & Ellis. More retailers are bound to close, says Goldfarb, and the vacancy problem will worsen in 2009. Troubled retailers usually hang on during the Christmas holiday.
Clouds looming
The national retail vacancy rate exceeds 7 percent and Manhattan's rate is competitive, says Edward Jordan, East Coast director of net lease property for Encino, Calif.-based broker Marcus & Millichap. With retailers such as Circuit City, Linens 'n Things and Starbucks closing stores, it doesn't bode well for vacancy rates.
Retail vacancies are likely to start in fringe New York City areas and spread to the major shopping districts. Bank branches, Goldfarb says, may be among the casualties of the economic downturn. In recent years, Washington Mutual, Citigroup and other banks opened dozens of branches around New York City, many on prime retail street corners.
“The banks helped to hold up the market by overbidding for spaces,” says Goldfarb. “If someone was willing to pay an asking price of $250 per square foot, a bank would come in and offer $350.”
Now many of those expensive storefronts are likely to go dark as banks merge and struggle to cut costs, adds Goldfarb.
Although Wall Street layoffs seem certain to hurt retailers in the Financial District, New York still stands apart from much of the rest of the country. With a population of nearly 8.3 million, the Big Apple has 27,147 residents per square mile.
The teeming New York City sidewalks of Fifth Avenue, the Upper East Side and Soho, where international tourists visit, provide an ideal environment for retailers. Over the past year, retailers engaged in bidding wars as they sought to lease prime space. Abercrombie & Fitch set a city record in July when it agreed to pay $2,500 per square foot for 20,000 square feet at 666 Fifth Avenue.
“Demand for the best locations has been strong,” says David Green, executive director of retail services for Cushman & Wakefield.
Intrepid New Yorkers
What does all this mean for big developments? In Brooklyn, Atlantic Yards developer Bruce C. Ratner cited the downturn in the economy could delay the controversial $4 billion project for years. Forest City Ratner Cos. called its 22-acre mixed-use development “a long-term project that will extend well beyond the current financial situation.” Ratner's plans now call for breaking ground in the spring of 2009.
Back in Manhattan, the proposed redevelopment of the James A. Farley Post Office into Moynihan Station, a transit hub and public-private mixed-use development is “still moving forward,” says Erin Duggan, deputy press secretary for New York Gov. David Paterson. The $3 billion project calls for renovating the train hub under Madison Square Garden and building 6.5 million square feet of commercial and retail space. Governor Paterson has asked for a report on the project by mid-November.
The city's financial crisis, Duggan says, is “definitely something that will have to be taken into consideration.” According to her, “the governor says ‘infrastructure projects still have to go forward even when the economy is tightening.’”
Stan Luxenberg contributed to this article.
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