How SoHo’s Retail Rode the Rich to Rebound From the Pandemic

Cheaper store rents also helped immunize the tony Manhattan enclave against the economic ill effects of COVID. A big rezoning now looms.

reprints


Ed Coury, a managing director at RCS Real Estate Advisors, remembers the SoHo of that first pandemic summer as decidedly less than idyllic.

“If you would have walked through SoHo, driven through SoHo, you would have thought that there had been a world war,” Coury told Commercial Observer. “It was unrecognizable.”

SEE ALSO: Key Food Signs 20K-SF Lease in New East New York Development

SoHo’s once-coveted luxe storefronts, boarded up during the summer of 2020, made an impression on Mike Watson, a broker at Lee & Associates NYC, too. Watson recalled himself and potential tenants peeping through blocked-off windows of stores, unable to go inside as the real estate brokers for the spaces had fled the city.

“It was relatively desolate,” Watson said. “There were plenty of brokers that basically said, ‘Hey, look at it through the windows, you can see what you need to see. You can’t see the lower levels — sorry I’m not coming into the city.’ … [With some storefronts] you couldn’t get in because they were boarded up.”

Watson and Coury were witnessing, in real time, the emptying of one of the East Coast’s poshest neighborhoods — a community born decades ago in the ashes of the cheap (and often illegal) live-in artist lofts and today known for luxury retailers, fancy restaurants and wealthy residents. Long-time tenants and owners left, landlords like Vornado Realty Trust lost money selling two SoHo buildings, and, in 2020, New York City’s retail leasing dropped precipitously — the Big Apple saw 77 percent fewer retail transactions than in 2019, according to Patrick Smith, a vice chairman of retail brokerage at JLL. 

Now though, SoHo is very different from those early pandemic days, Watson said. Life (and leasing, of course) finds a way. While pedestrians saw abandoned streets, retailers were shopping around for a deal on rent. The once-empty storefronts from Houston Street to Canal Street have been snatched up by luxury tenants from Chanel to Bottega Veneta to F.P.Journe. In 2021 alone, at least nine luxury retailers signed deals for space in SoHo, ranging from 4,000 square feet for luxury men’s lifestyle brand John Varvatos to 11,000 square feet for British jeweler Vashi at 102 Greene Street — all ready for their clientele to return from their pandemic retreats to second homes.

With those desolate streets now an early-pandemic memory, SoHo’s survival is in need of a post-mortem, or post-vita in this case. What’s begun to make SoHo thrive again — and what kept it from total abandonment in the first place — is something the district’s retailers and residents seem to have more of than anywhere else in New York City: wealth.

About 41 percent of households in SoHo make at least $200,000 a year, compared to 11 percent of New York City households who make that much, according to the city’s study on rezoning the neighborhood, released in October 2021. SoHo’s median home sales price was $1.5 million in 2020, compared to about $700,000 on average for the city, and 47 percent of SoHo households owned their home as of 2019, rather than rented it, compared to 33 percent in New York City. 

Unlike Times Square and Fifth Avenue, tourism wasn’t the only thing keeping SoHo afloat during the pandemic. The roughly 164,00 mostly white, rich residents that live in the Greenwich Village and SoHo areas cushioned the blow of pandemic-caused drops in shopping and going out in general, according to JLL’s fourth-quarter 2021 retail report.

Coury, who represented the gemstone-encrusted jewelry retailer APM Monaco in its recent renewal at 155 Spring Street in SoHo, put it simply: SoHo’s ultra-rich population “didn’t hurt.”

“The demographic down there is terrific,” Coury added. “They were also the most able to leave the city. … The super wealthy, they left the city for their second houses. They came back because they wanted to be back in the city, and they want to be back in SoHo most specifically.” 

Retail rents, too, came down during that initial, short-lived exodus, giving tenants the possibility of a rare deal in the area. SoHo had the highest leasing velocity in 2021 in Manhattan, with over 200,000 square feet leased in 42 deals, according to a CBRE fourth-quarter 2021 report. Luxury brands like Cartier, Valentino and Tumi drove that growth, with the trio taking more than 9,000 square feet each on Greene Street, Spring Street and Broadway, respectively. Availability dropped 24 percent in the fourth quarter, helped perhaps by retail asking rents falling nearly 10 percent compared to the previous quarter, to $454 per square foot, according to the report

SoHo is now bustling with activity, even as rents have not completely returned from pandemic lows, said Christopher Owles, a principal at Sinvin Commercial Real Estate. Last year was one of his busiest on the job, which he partly attributed to pent-up demand for in-person activities like brick-and-mortar shopping, and how retailers have made their locations more attractive to consumers. 

“In a strange way the pandemic was a blessing, because people realized how important it was to have in-person interactions after being stuck at home for so long,” Owles said. “There is pent-up demand. … A lot of stores or retailers are focusing on creating environments that are unique and sometimes changing their interactive elements to it … things that just draw customers in a different way.”

Watson, who represented the Swiss watchmaker F.P.Journe in its relocation to SoHo this past November, agreed, saying visiting SoHo today feels the most like pre-pandemic New York among the city’s neighborhoods.

“It’s almost like the sun comes out when you go to SoHo,” Watson said. “It’s really one of the most lively areas in town. There are a lot of deals being done.”

Luxury retailers tend to rely more on relationships with their patrons that can’t be replaced by online shopping, which was cutting into brick-and-mortar retail profits even before the pandemic, Watson said. “Sex and the City” fans will remember the five-year wait list Samantha, played by Kim Catrall, was on just for the chance to spend several thousand dollars on an Hermès Birkin Bag. For certain high-end purchases, an in-person meeting is more of a requirement than, well, a luxury.  

“Brands, such as F.P.Journe, at the upper echelon of luxury, are offering a completely different experience,” Watson told Commercial Observer over email. “In today’s red-hot watch market especially, Journe’s transactions are, or quickly become, relationship-based. … There are extensive wait-lists, and it’s become almost necessary to have a relationship with the brand.”

That relationship between a consumer and a luxury brand was part of the reason F.P.Journe departed its 900-square-foot storefront at 721 Madison Avenue on the Upper East Side for a 6,210-square-foot store at 53 Mercer Street. The brand needed more space to host events for watch collectors — something that can’t be replicated online, Watson added.

By all accounts, SoHo’s ritzy residents and reputation for high-end goods are what saved it economically during COVID-19, but looming in SoHo’s future is a controversial rezoning intended to bring more housing to the neighborhood’s sorely lacking crop. 

Some locals are concerned that the SoHo/NoHo rezoning — which would allow for more than 3,000 new apartments and some more affordable housing — would disrupt the character of the neighborhood, though it’s worth noting that SoHo’s artsy vibe is more memory than reality, given that most artists can’t afford a $1.5 million apartment. SoHo — named by a city planner in 1963 for its location south of Houston Street — has gone through several changes over the years, from an industrial district defined by cast-iron buildings to a starving artists sanctum popular with the likes of Andy Warhol, Twyla Tharp and David Bowie (and, for that matter, Spinal Tap), to finally an example of the city’s elite. 

The SoHo/NoHo rezoning is still being challenged in the court system by a neighborhood group, the Coalition for Fairness in SoHo and NoHo, which claimed in a February lawsuit that it is unconstitutional. (The City Council approved it in December 2021.) SoHo and NoHo have been zoned as light manufacturing districts for about 50 years, and include a handful of live-work spaces for practicing artists, according to the city. The rezoning would allow for new housing, restaurants and larger retail stores, but critics fear developers will choose to build for big-box stores or offices rather than housing, and that the plan does not provide enough affordable housing for the area.

But, at least according to Smith at JLL, clear zoning rules and an influx of residents might help local retailers facing hazy zoning codes and city rules. 

“Let’s just make clear what is the zoning and what retailers can do and what they can’t do,” Smith said. “I think the ambiguity for a period of time didn’t help.”

The SoHo/NoHo rezoning battle has been duked out mostly in terms of residential leasing, and hasn’t impacted Watson’s retail leasing business, although vendors do ask about it. Owles doesn’t expect the rezoning to have a big impact on retail, given the slow pace of development in the city. The headache with dealing with SoHo’s antiquated zoning just gives attorneys another thing to stress about (and bill for) and adds a few pages to a lease agreement, he added.

While the rezoning debate works itself out, SoHo’s retail will be doing just fine, and Smith expects the retail sector nationally and in the city to improve this year. 

“With the return of domestic tourism, and hopefully some international tourism, the return to places like New York City is inevitable,” Smith said. “Don’t ever count New York out.” 

Celia Young can be reached at cyoung@commercialobserver.com.