How spillover from high-end locations in New York City has created value for adjacent streets and driven up rents.
New York City’s retail real estate market, the bellwether for trends, values and ingenuity, is setting records on every level — even on side streets.
While traditionally strong retail corridors, such as Fifth Avenue, Madison Avenue and Broadway, have seen overheated retail rents due to increased tourism and consumer spending, better than ever residential demand and retailer confidence in the stability of these markets has helped drive demand beyond traditional “high street” locations.
National brands, luxury retailers and international innovators all understand the need to be in marquee locations with prime addresses, yet the demand is far outpacing the suppl,y which had led to side street spillover, increasing the values and thus the rents for any streets touching these white-hot spaces. What that means for retailers is that the presence of these magnet high street retailers has drawn shoppers and pedestrians to walk around the area and thus spillover to the cross blocks and side streets. The increased traffic allows for new pedestrian street patterns to lead shoppers to these secondary destinations.
For example, ever watch the crowds waiting outside Hollister at 666 Fifth Ave.? Once they are done shopping or grow tired of waiting in line, these folks walk around the block and meander to nearby retailers.
Further proof of strong demand for retail space is asking rents. According to Eastern Consolidated’s May 2013 Retail Pulse Report, in Midtown along Fifth Avenue in the Plaza District — the prime tourism corridor — asking rents have approached $3,000 per square foot. This looks extreme when compared to Downtown retail rents, yet these rents are comparable to those in high-end areas of London, Tokyo and especially Hong Kong where rents are close to $4,000 per square foot.
Other New York City submarkets are showing similar steady growth. Rents in Midtown South are lower than in Midtown, but rents are climbing at a faster rate, especially in SoHo and the West Village. From popular side streets like Houston to Broome streets in SoHo, retail rents are approaching nearly $900 per square foot, and approximately $600 per square foot from Bleecker Street to Hudson Street.
In neighborhoods like the Upper East Side and Upper West Side, there are fewer tourists, but rents are driven by the increased demand for housing in these neighborhoods. From Madison Avenue to East 57th and 72nd streets, rents are creeping up to an astronomical $1,500 per square foot. However, on quieter blocks further uptown, East 86th Street from Lexington Avenue to 2nd Avenue is seeing rates reach over $500 per square foot.
In addition to higher-than-ever retail rents, the jump in retail property sales has been unprecedented. Before the “fiscal cliff” hit in the fourth quarter of 2012, volume increased from $285 million in the third quarter to $2.02 billion during the fourth quarter, a growth rate of more than 600% percent. And much of the activity from the bigger sales helped spawn investment activity on nearby side streets.
The largest sale reported in 2012 was for the retail portion at 666 Fifth Avenue that traded for $707.8 million, or more than $6,000 per square foot. Vornado purchased the condominium portion from a consortium that included The Carlyle Group, Crown Acquisitions Inc. and Kushner Cos. Also, the retail at both the Plaza and St. Regis hotels traded. The buyer for the St. Regis space is high-end European retailer Richemont N.A. that paid more than $12,000 per square foot and will likely use the space.
But, the activity isn’t limited to Fifth and Madison alone. Side streets in SoHo, the Meatpacking District and the West Village are also posting extremely competitive numbers. Recently, our firm handled the sale of the iconic 45,000-square-foot “King of Greene” Building at 72-76 Greene St., which sold for an impressive $41.5 million, or $913 per square foot, to L3 Capital LLC. In addition, Eastern Consolidated brokered the sale of the retail condominium at 58-60 Ninth Ave. for $18.2 million, or $1,679 per square foot, to buyer DelShah Capital.
In sum, commercial property sales statistics show that investor interest is showing no signs of slowing down, as many see the continued potential of New York City’s retail real estate landscape and continue to scout for opportunities —especially in unexpected locations.
— Adelaide Polsinelli is senior director of Eastern Consolidated in New York City. Contact her at [email protected]