Although Americans are still shopping at stores, the coronavirus pandemic has significantly dented the retail sector as a whole and created new challenges for physical spaces. This year is expected to yield record bankruptcy numbers and commercial real estate owners will have to contend with declining revenues as retailers abandon leases.
Even the United States’ most popular shopping neighborhoods aren’t immune — in fact, a new report suggests that retail rents in the country’s fashion capital of New York City are plummeting as the COVID-19 outbreak keeps many consumers indoors and pushes them online.
According to brokerage Cushman & Wakefield, Madison Avenue — the mile-and-a-half stretch in Manhattan where locals and tourists can find upscale boutiques and luxury fashion names — recorded a 17% decline in rents to an average of $779 per square foot during the third quarter. The firm reported that the price is down 52% from its peak over the past five years.
What’s more, the commercial intersection of Herald Square — where Macy’s flagship store as well as other nationwide chains like Victoria’s Secret, Zara and Urban Outfitters are located — saw an 18% drop, while Times Square — which houses H&M, Gap and Aldo Shoes, among others — logged a 5% decrease. (Only Lower Manhattan — out of the 11 shopping districts tracked by the firm — posted a rise in rents, up 4.5%.)
The plunge can also can be attributed to a significant slump in tourism in New York, which at one point was considered the epicenter of the coronavirus pandemic. Madison Avenue, Herald Square and Times Square are also major hubs for offices: Due to government-mandated lockdowns, many companies encouraged their employees to work from home, and despite a lift in restrictions, thousands of people across various industries continue to perform their jobs remotely, which has shifted the districts’ retail ecosystems.
As rents continue to fall, space availability is rising. Cushman & Wakefield shared that Madison Avenue, for instance, saw the highest availability rate in the third quarter at 35%.
Even before the health crisis, the rise of e-commerce and surge in commercial real estate rents have put increasing pressure on brick-and-mortar retailers in New York City. Since March, however, a slew of major retailers — including J.Crew, Neiman Marcus and JCPenney — went bankrupt, while others have drawn down millions or applied for government stimulus funds to keep their businesses afloat. Separately, a growing list of landlords have resorted to legal action against tenants who have skipped out on their lease obligations to cut costs and maintain liquidity.