New York City retail market slows down
According to CBRE Group latest Manhattan Retail MarketView for fourth quarter 2016, New York City’s retail market has hit a tipping point.
Following a tremendous run-up in rents over the past four years, average-asking rents eased in 2016, alleviating some pressure felt by tenants. Of the 16 retail corridors tracked by CBRE, 11 saw decreases year-over-year; in aggregate, all corridors dropped 4.1%. Several corridors, notably Madison Avenue, the Broadway section of SoHo and 14th Street in the Meatpacking District, saw an increase in available storefronts during 2016, further indicating a slowing market. Further leeway in landlord concessions, tenant allowances and additional rent-free periods are being seen across the market. This may buoy leasing activity as retailers look to take advantage of the easing rent environment. In particular, small businesses and local tenants that have struggled to keep up with rent increases in recent years–ceding space to large national chains, bank branches and pharmacies–may benefit.
While the continued migration to online retail sales was a big challenge for many traditional retailers in 2016, the New York City market seems to be weathering this change well relative to other locales. In prominent retail centers such as Manhattan, both formerly online-only and traditional retailers value an on-the-ground presence to expand their brand image. Many online retailers created pop-up stores to connect directly with customers, while some retailers are also using their brick-and-mortar presence to sell both their brand experience as well as their products. As online retailing continues to grow, less of a retailer’s revenue will be through in-store sales. However, given New York’s position as a global prime retail market, a physical presence remains crucial for brands wishing to strengthen connections to their customer base.
Average asking rents showed notable declines over the past 12 months, though remaining near historic highs throughout Manhattan. During 2016, the average asking rent for the aggregate Manhattan market decreased 4.1%, from $1,008 to $967 per sq. ft., with 11 of the 16 retail corridors tracked by CBRE recording decreases. However, the fourth quarter saw the average asking rent increase quarter-over-quarter by 5.4%, following three consecutive quarters of decline.