Retail’s Redemption
By Gus Delaporte December 10, 2013 8:00 am
reprints
More than a decade ago, with just 30,000 people living south of Chambers Street and the neighborhood largely silent at night and on the weekends, high-end, luxury retail in lower Manhattan was at best a pipedream and at worst a failed enterprise.
Today, with some $20 billion being spent on new construction between the upper stretches of Battery Park City and Broadway, the residential community has doubled to 60,000 and continues to grow. That affluent community of residents, not to mention increased tourist traffic, has upped the demand for luxury retail.
Burberry, Hermès, Ferragamo, Michael Kors and Zegna are some of the luxury names to have signed on at Brookfield Place, while J. Lindeberg and Tory Burch head the list of names rumored to be in talks for space at Westfield’s World Trade Center retail corridor.
“If you had asked me a year ago about Brookfield, I would have told you I wasn’t sure—and my retailers weren’t sure either,” said Faith Hope Consolo, chairman of the Douglas Elliman retail team. “But they’ve worked very hard, and they’ve been able to attract a really good core selection.”
But the bullish behavior isn’t limited to lower Manhattan. From the emergence of the outer boroughs as genuine players in the market to redevelopment across 34th Street, it’s all happening, and fast, in the world of Big Apple retail. Asking rents in the major retail markets of Manhattan averaged $130 per square foot in fall 2013, up 18 percent year over year, according to data from the Real Estate Board of New York.
“In general, the New York market remains very healthy,” noted Robert Gibson, vice chairman in Cushman & Wakefield’s retail services group, whose own third quarter retail stats showed an increase in rents in nine out of 10 Manhattan submarkets.
Uptown, along the traditional luxury retail corridors, retailers have reemphasized the importance of flagship New York locations: Asking rents on Fifth Avenue hit $3,000 per square foot in the second quarter, according to data from CBRE, the first time that threshold had been broken in New York.
Driving the Fifth Avenue market were 38,000-square-foot and 20,000-square-foot deals for Ralph Lauren and Valentino at 711 Fifth Avenue and 693 Fifth Avenue, respectively.
“The Valentino deal on Fifth Avenue is very exciting,” Mr. Gibson said. “They paid market, but that’s a space that they’re betting everyone who comes to New York will walk by.”
On Madison Avenue, long considered the epicenter of high-end retail, Hermès extended its lease for 10 years and paid some of the highest rents on the street to stay on the corner of 62nd Street. The French luxury retailer paid more than $1,700 per square foot.
Despite raving about the growth of the Madison Avenue market from 59th to 72nd Streets, Jones Lang LaSalle’s Michael Hirschfield questioned the pricing of the Hermès deal.
“That’s a remarkable number, an eye opening number. It’s higher than any rents on the street,” he said.
Others argue the rent numbers are meaningless.
“That’s their flagship; that store does more business on Madison than they ever did when they were on 57th,” Ms. Consolo said. “The money doesn’t mean a thing.”
South in Times Square, it’s status quo, where tenants are reaping huge sales volumes for their marquee space, but with Toys ”R” Us rumored to be on the way out of its 100,000-square-foot location on Broadway, a huge swatch of space could hit the market in the bow tie.
Early suggestions indicate that the space, set to be vacated in 2016, could be divided into smaller spaces for several separate retailers, and with ground floor space in Times Square asking upwards of $2,000 per square foot, significant deals could be on the horizon.
Big transactions have already been inked in Herald Square, where Macy’s and JEMB Realty have both announced plans to reinvigorate one of Manhattan’s most storied retail corridors.
JEMB will welcome the world’s largest H&M location—in excess of 60,000 square feet—at its redeveloped Herald Center complex next fall. The 250,000 office and retail property, formerly occupied in large part by defunct discount retailer Daffy’s, will undergo a complete repositioning, including the installation of a glass facade and LED lighting, beginning early next year.
Not to be outdone, Macy’s in the midst of a $400 million renovation of its landmark 34th Street location nearby.
“The H&M world flagship is going to transform an already great retail corridor,” Mr. Gibson said. “Herald Center was a tired retail building that needed to be transformed, and with the renovations that Macy’s is doing, it will further activate 34th Street.”
