NEW YORK CITY—The Manhattan retail market is seeing rents continue to plummet from its peaks three years ago as the industry copes with the rapidly evolving needs of tenants.
In the latest report on the retail sector in New York City, Nicole LaRusso, director, research and analysis, CBRE Tri-State, opened the report with this no-holds barred assessment of the current marketplace. “As of Q3 2017, retail rents in the Manhattan market continue to decline. The market is reckoning with the implications of an environment where pricing has been misaligned with current demand levels, as it adapts to the larger challenges of an evolving retail business model.”
She adds that while the falling rents are creating challenges for landlords and investors, the downward adjustments are helping stabilize the retail market in Manhattan and are in fact encouraging some tenants to take advantage of a healthy New York economy.”
LaRusso notes that since peaking in 2014, the asking rent for Manhattan’s main corridors has declined by 23%. “This adjustment is bringing rent growth between 2010 and 2017 closer to the trajectory of retail sales growth, which has expanded steadily in recent years,” she says. “Taken together, these two trends suggest that the market might be coming closer to alignment between what tenants can afford to pay and the revenue they can achieve.”
Other key findings in the report included that nearly all of Manhattan’s main shopping corridors have experienced meaningful declines in their average asking rents in recent years. In fact, some of the largest rental rate declines have been seen among corridors where rents had more than doubled in previous years.
According to the report, Herald Square (34th Street between Fifth and Seventh avenues) has seen average asking rents plummet 42% from its peak of $988-a-square-foot to its current third quarter 2017 rate of $575-a-square-foot.
Asking rents in SoHo (Broadway-Houston to Broome streets) have fallen 30% from their peak of $871 to $607-a-square-foot. Upper Madison Avenue (Madison Avenue-57th to 72nd streets) has experienced a 27% decline in average asking rents from its peak of $1,771-a-square-foot to $1,289-a-square-foot.
The report notes that some sections of the city have bucked the prevailing trend and have experienced much less of a falloff in rents. For example, the Flatiron/Union Square section of Fifth Avenue has seen rents slip only 3% from its peak of $419-a-square-foot to the third quarter 2017 rate of $406.
In much of Manhattan, the overall trend has been a significant decline in both asking and taking rents to a level more in line with the revenue potential. Additional rental adjustment is possible and likely in some locations, CBRE states,
The taking rent index has fallen considerably to the lowest percentage seen since 2010: taking rent is currently 82% of asking rent, while at peak, it was between 96 and 98%, the report states.