Even Manhattan’s most prestigious shopping corridors are being forced to discount their asking rents as retailers look to trim their brick-and-mortar footprints and avoid pricey lease commitments.
According to Cushman & Wakefield, rents dropped in seven of the 11 markets the real estate firm tracks during the third quarter of 2019. Among most dramatic declines was Lower Fifth Avenue between 42nd and 49th Streets, where rents dropped 16.5% from last year to an average asking cost of $840 per square foot. In June, Topshop shuttered its 44,000-square-foot, four-floor location on the strip following parent company Arcadia Group’s bankruptcy filing. Here, at least, the lower rents seem to be encouraging an influx of new tenants: The availability rate dropped nearly 10 percentage points from last year to 16.1%.
Among the new tenants are Ugg, which signed a lease at 530 Fifth, joining fellow tenant Vans; Club Monaco, which inked a deal at 597 Fifth; and Puma, which opened an 18,000-square-foot flagship at 609 Fifth in August.
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On Upper Fifth Avenue between 49th and 60th Streets, asking rents remained stubbornly high in the third quarter, ticking up 1.1% to $2,697 per square foot. Landlords seem to be struggling to find new retailers to fill the pricey storefronts, however, as the vacancy rate hit 27.9% — the highest since Cushman began tracking the corridor in 2006. The past year has seen a massive flagship exodus as Gap, Tommy Hilfiger, Ralph Lauren, Henri Bendel and Massimo Dutti all said goodbye to their Fifth Avenue locations. Versace, too, has reportedly been looking since last December for another tenant to sublease its flagship on the strip.
Landlords are also coping with a retail market that’s reluctant to jump into leases for larger spaces, and many of the city’s major retail tenants are struggling: Forever 21, which filed for bankruptcy in September, is closing more than 100 stores across the U.S. as it looks to consolidate its business; and Victoria’s Secret is shuttering more than 50 locations in 2019 following three years of sales declines.
According to a report this spring from the Real Estate Board of New York, Upper Fifth still has so much availability because, “Despite instances of rent reductions, newer owners who purchased spaces at peak market rates are slow to adjust their prices and are struggling to fill vacant spaces.”
This situation is similar in SoHo: Cushman says the Broadway shopping strip now has 47 storefronts available for lease; many have pop-up shops in them temporarily, but long-term tenants are harder to come by even as average asking rents dropped to $359 per square foot in the third quarter, their lowest point since 2012.