Manhattan Retail Market a ‘Mixed Bag’ in Q3

The borough saw increased asking rents but slower leasing velocity in the third quarter.

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Manhattan’s retail market can be characterized simply as “a mixed bag” in the third quarter, according to CBRE (CBRE) Senior Vice President Matthew Chmielecki.

While average asking rent in Manhattan’s prime retail corridors increased for the fifth consecutive quarter, leasing activity has slowly declined during roughly the same period, according to CBRE’s newest Manhattan retail report.

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Average asking rent across the 16 commercial districts CBRE tracks in the borough grew 2.7 percent quarter-over-quarter to $663 per square foot in the third quarter of 2023, the report found.

Meanwhile, rolling four-quarter aggregate leasing velocity stood at 2.8 million square feet in the third quarter — a 2.6 percent quarterly decrease and a 17 percent drop from the peak of 3.4 million square feet in the third quarter of 2022, according to CBRE.

CBRE field research manager Hironori Imaizumi, one of the authors of the report, said the demand for premium space is causing the retail market to tighten since there’s not much vacant high-end space left in the borough.

“The best streets in SoHo and Flatiron and Madison are currently just very supply constrained,” Imaizumi said. “Leasing was so strong in 2022 that there’s just not many spaces left.”

Third-quarter leasing activity was highest in SoHo, Grand Central and Upper Madison Avenue, according to CBRE. Of those, the Broadway corridor in SoHo led the pack with more than 107,000 square feet leased in 16 transactions as the neighborhood continues to shine post-COVID

Apparel was the most active sector grabbing space in the third quarter.

Banana Republic signed the largest deal of the quarter, temporarily taking 30,000 square feet at Premier Equities515 Broadway while the clothing retailer renovates its existing store at 552 Broadway, according to CBRE. 

Italian clothing company Brandy Melville, meanwhile, renewed its lease for 22,000 square feet at 519 Broadway, and Madewell announced plans to open a new 6,600-square-foot location at 565 Broadway.

French luxury brand Saint Laurent signed the largest new deal, taking 14,000 square feet for its outpost at 70-74 Gansevoort Street in the Meatpacking District.

CBRE’s retail taking rent index — the average rate of ground-floor asking rents achieved across the city’s prime retail corridors — hit 80 percent in the third quarter,  up 120 basis points quarter-over-quarter and 780 basis points from 72.2 percent in the third quarter of 2022.

On the supply side, the number of direct ground-floor availabilities across all 16 retail corridors increased for the first time since 2021 to 203 spaces, ending eight consecutive quarters of decline, according to CBRE.

That’s “a very healthy number,” said Imaizumi. 

“Even on Madison Avenue on the lower half of the corridor, there’s no empty spaces anywhere,” Imaizumi said.

Luxury retail’s strong performance, paired with the continued strength of the bottom discount markets, is creating a barbell effect, according to CBRE. 

“The middle — where the bar of the barbell is — that’s where it’s still on the fence and hasn’t recovered as well,” Imaizumi said.

“It’s starting to be reflected in the city’s economic indicators as well,” Imaizumi added. “We’re seeing consumer confidence, retail sales, and the retail job count slowing down. We’re trying to go into the rest of the year with a bit more subdued optimism after the last report.”

Abigail Nehring can be reached at anehring@commercialobserver.com.