New York City is one of the most highly sought-after retail loca- tions in the world. But opening a store in that retail market can be a daunting challenge for newcomers when it comes to choos- ing the right location at the right price.
Domestic retailers often look to plant a flagship there, while international brands view the city as an important first step when entering
the U.S. “New York is the place to be because it sets the stage for the U.S.
All of the U.S. visits New York, and there is a world stage here,” says
Joshua Strauss, an EVP at New York-based RKF, a retail leasing and
investment sales firm. The city attracted a record 56. 4 million visitors
last year, including 44. 2 million domestic travelers and 12. 2 million visitors from other countries.
But sticking a flag on a map and finding a location that is a good match
for the concept are two entirely different things. Retailers generally set
their sights on Manhattan, which itself is home to about a dozen submarkets. “Manhattan’s retail market is bigger than ever with brands
from across the globe vying for prime real estate throughout the city,”
says Faith Hope Consolo, chairman of the retail leasing and sales division of New York’s Douglas Elliman Real Estate. Manhattan used to have
more “niche” shopping districts, but today the retail corridors are pretty
eclectic, adds Consolo. For example, Fifth Avenue in the 50s area is still
all about fashion, but retailers run the gamut from Armani to H&M.
A big factor influencing location decisions in Manhattan of late has
been soaring rents. “I have been a retail broker in Manhattan for 27
years, and I have never seen prices go up as quickly as they have in the
past four years,” says Bob Gibson, JLL’s vice chairman and retail broker
lead for New York City. Rents have rebounded along with the improving economy, and additional rent hikes have been spurred by frenzied
investments by new owners with high expectations for revenue growth.
Madison Avenue, for example, saw its asking rents drop from a high of
$1,200 per sq. ft. to $600 during the recession. Now landlords are doing
deals at $1,300, $1,400 and $1,500 per sq. ft. with asking rents as high
as $2,000 per sq. ft., says Gibson.
High rents prompt brands to tread carefully
when expanding into New York City
By Beth Mattson-Teig
take a bite
out of the
Retailers weigh costs carefully
Although there are signs that rent escalations may be slowing and even bumping up against a ceiling in some areas, rents
have been steadily on the rise over the past few years. Asking
retail rents increased during the second quarter of 2015 in five
of the 11 Manhattan retail submarkets, according to Cushman
& Wakefield. The Upper Fifth Avenue shopping area, 49th
through 60th Streets, represents the high watermark in the
city as well as some of the priciest retail space in the world.
Asking ground floor rents are up 4.9% over last year to average
Brookfield Place in the Battery Park City neighborhood,
which opened in March, is attracting retailers in the
upper end luxury market.