Columns Mann Report

Accept Lower Rents For Now

I have been working hard for the past few months, despite the pandemic. JAACRES (Joseph A. Aquino Commercial Real Estate Services) has gone on a hiring blitz, securing experienced salespeople. Our objective: to keep the retail leasing business active, despite the unfavorable market conditions that prevail all over the world, mainly as a result of the novel coronavirus.

Every two weeks, I host a Secret Brokers Society (SBS) call that assembles top commercial real estate professionals from major cities around the globe. The SBS Group has been together for nine years, and we each bring a lot of knowledge to our meetings. There are 32 of us in the organization, and not all of us show up for every meeting, but we get pretty strong attendance. We share information on what is happening in our respective markets. A recent call included brokers from Berlin, Germany, Rome, Italy, Las Vegas, Nevada, Miami, Florida, Washington D.C. and New York City. Members from Shanghai, China, London, U.K. and Los Angeles, California often join us. We all agree that leasing retail space is harder than ever — and in some markets, increased homelessness is making matters worse.

The Chairman of the Federal Reserve, Jerome Powell, recently said, “The effects of the dried-up [coronavirus stimulus] benefits are a looming risk to the economy, even if the consequences aren’t yet visible.” Everyone is feeling the cash squeeze, and even when store traffic increases, consumers will not be shopping as they used to.

In New York City, as I write this, 40 stores are available just on Madison Avenue between 57th and 72nd Streets; it’s the highest vacancy I have ever seen, in one of the city’s most vibrant retail neighborhoods. The area further north on Madison Avenue — from 72nd to 96th Street — has lower vacancy and more residential traffic, but no matter how busy that neighborhood appears, retailers tell me nobody is purchasing.

The big question on all of our minds is, “How long will this situation last?” The next question is, “How can we adjust our strategies to make the best of it?”

I’ll offer you two pieces of advice: raise your outreach game, and lower your expectations.

I have been reaching out to all my customers from my 35 years in the business. On a recent afternoon, I was sitting at an outside table of a café when a man I didn’t recognize approached me. He reminded me that I had leased some retail space for him more than 15 years ago. He took a flyer out of his pocket and showed me the description of a space he has been trying to lease with no success.

After he had told me all the facts, I told him I would take care of his problem — and I did. Two weeks later, he had filled the space.

The new lease started not at the asking numbers, but at “COVID-19 numbers,” a new expression that I predict you’ll hear a lot. COVID-19 numbers are commercial lease terms drastically reduced from the asking price. Yes, the numbers were lower, but the landlord now has a tenant paying rent.

It has taken New York City property owners six months to face the reality that this nightmare will not be over soon. Many owners had expected an immediate bounce-back in commercial rents, but now these owners are advising their brokers to say more than, “We will be flexible; make an offer.” The smart ones are facing the fact that prospective tenants have plenty of options, so they’re directly offering hefty discounts — and making deals. It’s unfortunate, but they have to do it.

I’m getting calls from retailers I haven’t spoken with in one or two decades, all looking to relocate to more advantageous space. They are past negotiating with their present property owner. I enjoy reuniting with these old customers and their teams of professionals to give them advice and direction. They’re saving money on their new leases, and I see a lot of happy, relieved faces.

Joseph A. Aquino
101 West 55th Street, 11th Floor
New York, NY 10019
(917) 597-9880