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New York Retailer Market Update: Too Hot, or Not?


The ICSC New York Conference is one of the larger gatherings of retail real estate professional’s on the calendar – and is an important touch point for professionals in the NYC market. Ahead of the show, Bob Gibson, retail vice chairman of JLL, based in New York, shared his take on this expansive and important retail market.

Gibson focuses primarily on the tenant side – having represented retailers like H&M, Tom Ford, Capital One Bank, Verizon Wireless, Luxottica Brands and Filene's Basement in the New York metropolitan area and Salvatore Ferragamo, Burton Snowboards, Hugo Boss and Diesel USA nationally.

What’s your 30,000-sq.-ft. view on the NYC market right now?

Gibson: The major shift from January to now is that we’ve shifted from a heavy landlord favorable market to a tenant one. I think we are done with price per square foot increases and asking rents are starting to reverse course. Retailers aren’t performing quite as well with tourist spending receding in the face of a stronger U.S. dollar.

New York is in a perfect storm right now. Retailers are in a transition and looking for ways to be successful in their brick and mortar strategies while at the same time growing their e-commerce channels. Trying to integrate the two strategies require significant capital, which means budgets are stretched even thinner. As a result retailers are trying to do more with less – less space, less stores – and you couple that with some of the highest rents we’ve seen in New York and it’s no surprise that certain sub-markets have 30%-35% availability.

Is a rental market correction coming?

Gibson: Just because a landlord believes the rent is priced correctly, doesn’t make it necessarily true. Historically, retailers had one or two brand building flagship stores, but in the past few years landlords started pricing everything as if it was a flagship, which isn’t sustainable. So yes, with fewer retailers expanding – naturally the market will need to rebalance.

As New York’s retail market stabilizes it opens an incredible opportunity for retailers looking to increase their footprints. There are better deals available – right now we are transacting at least 30% below asking prices, and in some cases we’re seeing favorable concessions. Prototypically you would see about 9 months of tenant improvement concessions from landlords for store build-out, but now those are getting pushed out even further and that additional “free money” is bringing retailers back to the market saying “ok, now I can do deals.” Having less capital expenditures means that breakeven will occur quicker for the retailer, which incentivizes them significantly.

What do the concessions say about the NYC market? Is there a lot of softness? Is it in trouble?

Gibson: No the market isn’t in trouble. What is says, is that the delta between asking and taking rents just got too large in the last three years. Retail is a cyclical business – it’s cyclical seasonally and it’s cyclical historically. This is just the natural course, where rents get pushed past a certain threshold and then a correction is needed. Inevitably, transactions slowdown, but you need more deals to be done to re-set the market. That’s the period we are in right now, all the comps are two-plus years old, so we need more deals to close for the market to fully re-set and volumes to come back to higher levels. It will happen; but it’s probably still 12-18 months before everything shakes out and we have enough data come in to truly re-set everything. Until then, the more aggressive retailers are going to get good deals. The NYC market is still incredibly viable – a lot of cities had pricing issues – and NYC was not immune to that. But greater availability in this case is not indicative of a long term issue; it’s simply a pricing correction and the more aggressive retailers will look pretty smart in the next year or so.

So the market is still viable, but has it fundamentally been altered? Have we seen the end of luxury for instance?

Gibson: Has it shifted, yes. But, fundamentally altered, probably not – that’s too strong. Again, this is part of the cyclical nature of the business. It’s no secret that luxury has been stressed lately and we are seeing more of a shift towards experiential retailing. But that will moderate, than shift back towards luxury again at some point – that’s just the nature of the business as it is directly correlated to the taste and ability to spend on the part of consumers.

Any hot markets right now, even with the market rebalance occurring?

Gibson: For the most part leasing has been slow and steady over the past 9 months – not robust – but steady. The biggest slowdown was in the big brand play sub-markets – 5th Avenue, Madison Avenue, Times Square, SoHo – as retailers are content to sit those areas out and wait for the correction until they jump back in. The Flatiron district has been a real bright spot in terms of activity because asking prices never really rose there so they are much more attainable and attractive.
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