Lower rents, and they will come.
Dealmaking has increased, and while still declining, the depreciation of asking rents is starting to slow in key markets, according to the Real Estate Board of New York (REBNY) in the spring 2019 edition of its semi-annual Manhattan Retail Report.
Amid rising consumer spending, income growth and employment, Manhattan’s top retail corridors continue to experience declining rent values with heightened availability rates, making spaces more affordable and generating interest, the report said. Average asking rents for available ground-floor retail spaces decreased year-over-year in 12 of the 17 Manhattan corridors REBNY analyzed. Continuing 2018 trends, Manhattan retail leases in the first months of 2019 were driven by the food and beverage industry, followed by activewear, cosmetics, and technology brands.
“Manhattan’s continued natural correction in retail rents is spurring deal-making across the borough’s top corridors as retailers reconsider new and existing ground floor spaces,” said John H. Banks, REBNY president. “Our Manhattan Retail Report Advisory Group members have seen declining rents fostering a healthier leasing environment as more space is being absorbed at a more affordable rate than seen in recent years.”
On Soho’s Broadway(between Houston and Broome Streets), the average asking rent declined 9% from $595 per square foot to $544 per square foot year-over-year. Adjusted asking rents have incentivized dealmaking by various tenants including pop-up shops, digitally native brands, and retailers such as H&M, Brandy Melville, and The North Face.
The average asking rent in the Upper East Side on Maddison Avenue(between 57th and 72nd Streets) declined by 25% to $1,039 per square foot compared to spring 2018, the largest year-over-year decline. High availability rates along the corridor have led owners to continue lowering their rents and offer more short-term lease agreements. Flagship retailers across the strip are taking advantage of the softening rents by either locking in long-term lease agreements, moving to smaller-sized spaces, or migrating further south.
On Fifth Avenue (between 49th and 59th Streets), the average asking rent declined 22% from $3,900 per square foot in spring 2018 to $3,047 per square foot in spring 2019. This decline is attributed to both historically high availability rates and low absorption rates, as high asking rents are diminishing tenant demand. On Fifth (between 42nd and 49th Streets), the average asking rent dropped for the third consecutive year-over-year period to $878 per square foot, a 20% decrease from spring 2018.
The Advisory Group remains optimistic on the market observing increasing interest from new retailers entering the market, retailers previously deterred by high prices and retailers considering emerging neighborhoods.