What Works in New York Retail Now
Roland Li May 18, 2010, 8:19 a.m.
One of the most prominent victims of the Great Recession was luxury retail. Flashy jewelry and ostentatious apparel were affordable for only the most stubbornly showy Americans, and overall sales took a plunge. But new Manhattan leases in the first quarter of 2010 have shown that, at least on this island, luxury is resurgent.
At the same time, midrange retailers have kept brokers busy and offer strong appeal to budget-minded shoppers. A combination of cheaper rents, landlord concessions and an improved economy have made it clear: Retail is back, if not quite as flashy as before.
“I am seeing leases and deals being done at a frantic pace. People want to rush to close,” said Faith Hope Consolo, the ubiquitous chairman of the retail leasing and sales division of Prudential Douglas Elliman. “I’m very optimistic.”
The Japanese clothing store Uniqlo’s $300 million lease at 666 Fifth Avenue at the end of April was the most prominent sign of recovery. In a deal orchestrated by Bradley Mendelson of Cushman & Wakefield, the space’s listing agent, the retailer took almost 90,000 square feet, almost triple the size of its only other New York store, at 546 Broadway.
The deal reaffirmed New York’s status as a global destination for companies looking to establish their brands in America-particularly on Fifth Avenue, Madison Avenue, Broadway and Times Square.
Sweden’s H&M opened its first store on Fifth Avenue a decade ago, and today has nine Manhattan stores. Now, the likes of Britain’s Topshop and the Swiss watchmaker DeLaneau are staking out flagship stores in the city.
There’s still the inherent prestige of a Manhattan address. Particularly for companies with a few locations worldwide, having a New York location is almost mandatory in establishing a global presence. “It’s not about sales-they just have to be there to support the brand,” said Suzanne Mulvee, retail real estate strategist at CoStar Group.
That said, the economy is still fragile, and companies are more inclined to locate here because of financial considerations, rather than vanity addresses. “They’re more likely to be here than before because the economy is rebounding and because of cheap rent,” Ms. Mulvee said.
THERE’S MORE TO New York than just the image. The city is boosted by very affluent shoppers, not to mention the hordes of tourists that descend upon its stores, aided by efficient public transit. These factors give the city a clear advantage over more rural areas of the country, and also a leg up over less compact urban centers.
“In general, luxury retailers want to be in New York, because it has things that retailers want: density and high incomes, especially in pockets,” Aaron Jodka, senior real estate economist at CoStar Group.
The city has also been more resilient as far as employment compared to the rest of the country. Although Wall Street was the epicenter of the financial crisis, the federal bailout and steadily ascending stock market-at least until the past couple weeks-has led to widespread recovery here. These trends directly impact retailers, as Wall Street bonuses at the end of 2009 are the fuel that sparks retail spending, particularly for luxury brands.
“The general outlook is that the market is starting to improve,” Mr. Jodka said. “We’re starting to see a slowdown in the rising vacancy, a slower decrease in rents. The overall economic and employment numbers in New York are improving dramatically.”
But a down economy isn’t entirely bad news for tenants. Rents are still about 20 percent below peak levels in 2007, and locations that were once a pipe dream are now being realized as affordable locations.
In addition, there has been an increase in tenant-improvement allowances, wherein landlords essentially pay out-of-pocket for the tenant to build out a space. Other concessions can include discounted or free rent for part of a lease, as landlords have recognized that such benefits are necessary to attract tenants in a down economy.
“Things are picking up,” said Robert Futterman, chairman of brokerage Robert K. Futterman & Associates. “It’s all because tenants are interested in expanding, based on rents that are much less than they were two years ago.”
OTHER RETAILERS ARE attempting to capitalize on the economic mood by appealing to a more price-conscious consumer. Nordstrom, based in Seattle, had been looking to break into New York for years, but ended up settling on a discount version of the store, called Nordstrom Rack, which opened in Union Square last week. The store, with 25,000 pairs of discount shoes and around 30,000 square feet, is sure to appeal to a broader consumer base, and will capitalize on the heavy foot traffic in the Union Square area.
Even the luxury designer Carolina Herrera decided to open a more affordable store, CH Carolina Herrera, by signing a lease for 2,300 square feet at 802 Madison Avenue.
Midrange and discount stores such as TJ Maxx, which signed a lease at 250 West 57th Street in April, are always looking to expand. Times Square, another high-traffic area, has transformed into a fashion corridor, with the likes of Forever 21, Levi’s, Quicksilver and Billabong.
Online shopping, while growing, is only an estimated 5 percent of U.S. retail sales, according to CoStar, and pixels can’t match the physical experience of walking into a brick-and-mortar store, particularly for apparel retailers. While it has gutted some industries, such as music stores, the Internet is still a secondary market for most companies.
For the most successful retailers, the store is not merely a repository of products, but an extension of the overall brand. “The ones who know who they are, and have developed a dialogue with the consumer that resonates clearly -they’re always the best positioned,” said Michael Hofmann, senior managing director of the retail division at brokerage Cassidy Turley.
And as the city of celebrities and spectacle, New York seems well positioned in its retail market for the rest of the year, and full recovery may come around as soon as early 2011.
“The general outlook is one of optimism. New York City is where the opportunity is found,” Ms. Consolo said. “This is the city where brands are made.”