As ground-floor market rents continue to climb back toward the heights of 2007, retailers are beginning to set their sights higher, and lower, as demand and interest have steadily increased for above- and below-grade retail.
This is hardly a groundbreaking concept, as restaurants like Scalinatella and Serafina have occupied a basement and second-floor space, respectively, for years. However, the prospective audience for these spaces has increased exponentially as lower-level and second-floor spaces appeal to a number of retail uses and allow users to secure high-profile real estate addresses without bearing the bulk of the cost of a ground-floor presence. Restaurants like Catch in the Meatpacking District have created successful models by utilizing second-floor establishments and saving a great deal of money thanks to the relatively affordable rent. Fitness and health tenants like Revolve Fitness, Flywheel and Cross-Fit Gyms have also become drawn to these above- and below-grade retail stores as their business models cannot support the increasing costs of ground-floor space.
With typically lower ceilings, more abundant columns and less usable street signage, these previously less-desirable floors carry with them a smaller price tag, which users of all types now find to be appealing. As such, landlords have begun to take notice and cater to this increasing demand from a growing market of operators. Typical basement spaces, which at one point would have been throw into a deal for practically no cost, are now reaching record-breaking rents across the city from around $35 to $60 per square foot. Second-floor office spaces that were fetching $30 to $40 per square foot have been remolded to retail and now can be valued at $60 to $125 per square foot depending on the location.
With additions of new points of egress and other building regulations, landlords are able to meet the requirements for a usable retail certificate of occupancy, and, with that, a literal new level of retail is ready for lease.