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What’s Really Going on With New York City Retail?

Last February, Loeffler Randall co-founders Brian Murphy and Jessie Randall signed a lease on the brand’s first store, a 625-square-foot space in Manhattan’s Nolita neighborhood. The timing couldn’t have been worse. By March, the city was in lockdown amid a surge of Covid-19 infections, and buying a new pair of shoes was the last thing on anyone’s mind.

Today, though, the boutique is open and the streets are once again bustling with shoppers. Half of New York City residents are now at least partially vaccinated against the virus, and sunny weather is here, bringing with it a renewed sense of optimism and appetite for products like the brand’s bow-adorned sandals. 

“A lot of people told us to get out of the lease if we could, but we just hung in with it,” says Randall, adding that the store was a great motivator for her team. “It had been such a terrible year of horrible news and [the store] was just this wonderful, happy project that we were all working on and so excited about.”

While the company’s sub-landlords SMCP — the group behind brands including Sandro and Maje — didn’t forgive any rent during the year the space was shuttered, they were flexible with payment terms and became valuable mentors throughout the process, says Murphy. (SMCP operates more than 160 stores in North America alone.) 

As the city’s public health outlook improves, he said, “I think there is going to be a big wave of enthusiasm for brands like ours and for retailers who are doing special things in special places.”

In nearby blocks, the Swiss running-shoe brand On opened its first global flagship in December, kitting out the floor with gait analysis technology and an invisible foot scanner to measure size and running style. Sustainability-minded sneaker brand Veja, meanwhile, recently launched a running club based out of its Nolita boutique, which opened in March 2020.

Even with foot traffic picking up and retailers pulling out every stop, though, there is still a long road ahead for New York City’s retail market: empty storefronts abound, office workers are just beginning to trickle back in, and tourism is expected to take years to recover.

The retail vacancy rate in Soho was 22.4 percent in the first quarter of 2021, according to data from the commercial real estate firm Newmark. In Times Square, Fifth Avenue, and Madison Avenue — pricey corridors that rely on international tourists and wealthy commuters — vacancies have soared north of 25%.

Average asking rents, too, have declined significantly: In Soho, they’ve fallen to $261 per square foot from $343 per square foot in the first quarter of 2020, per Newmark, and to $1,528 per square foot from $1,976 per square foot on Fifth Avenue.

Joseph Aquino, president of JAACRES, a New York City-based commercial real estate company, says he has seen even steeper declines in the market, with some properties on Madison Avenue that once asked rents of $1,500 to $1,800 per square foot now asking as low as $500 to $600 per square foot.

These major adjustments may be necessary in some cases, he says, especially in neighborhoods where foot traffic and sales could take years to return to pre-pandemic levels. 

“People really have to have to recognize that this is not going to go away in a couple of quarters,” says Aquino, adding that he’s concerned that landlords may look at the signs of life around the city and prematurely hike their rents. “I understand the property owner doesn’t want to lock into a lower rent, but at the end of the day it’s all about sales. If there’s not a market here to support the rent, then why would the retailer even go through the exercise of renting the store?”

Subway ridership is still down by about 55% to 60% from pre-Covid levels, according to MTA data, and tourism officials project that the city will draw just over half as many visitors in 2021 as it did in 2019. 

The pockets of strength in the retail real estate market so far have been mostly in neighborhoods with plenty of residential foot traffic: corridors on the Upper West Side and Upper East Side; Williamsburg, Brooklyn; suburbs such as Westport, Greenwich, and Northern New Jersey; and high-end summer enclaves like the Hamptons. 

In April, Birkenstock chose Williamsburg for its third U.S. store, calling the location “another great example of being where our fans live, work and play.” Earlier in the year, luxury resaler The RealReal opened shop in Cobble Hill, Brooklyn, a residential neighborhood that’s also home to Rag & Bone and Bonobos outposts. Charleston Shoe Company, which signed leases for three New York-area locations in 2019 — Soho, Sixth Avenue near the Plaza Hotel, and Southampton — has since shuttered all but the Hamptons door. There, at least, sales remain strong, says Aquino, who brokered the deals.

The picture has been bleak, however, for major thoroughfares in Midtown. Asics, for one, closed its Fifth Avenue flagship in January, citing impacts from the pandemic. Ralph Lauren, meanwhile, is mired in a dispute with its landlord over the brand’s attempt to sublease its vacant, $27-million-per-year store for just $5 million annually to the fast-fashion chain Mango, according to a report from Insider.

“During Covid, you really had a tough time talking to any national chain about New York City, because they were looking at the store numbers and business was so drastically down compared to the rest of the country,” said Ariel Schuster, Newmark’s vice chairman of retail. “It was like, ‘Why would we do anything right now?’” 

That’s changed in recent weeks, he says, as the city has set a target date for a full reopening — July 1 — with attractions such as Broadway shows and music festivals coming back soon thereafter.

Luxury retailers, too, are more interested in expanding to growing markets in Florida and Texas than in opening more stores in New York, says Newmark. Still, the city remains an essential hub.

In the coming weeks, Manolo Blahnik is expected to open its flagship store at 717 Madison Avenue, a lease it signed in March 2020. Schuster, who helped broker the deal, says rents have declined along the corridor since their peak in 2017 and the brand secured a “very fair lease.”

While recovery is set to be slow and uneven, few doubt its inevitability.

“New York is always going to be New York,” says Taylor Coyne, senior manager of retail research at JLL, a commercial real estate firm. “It will always be a global city and retailers want to be there. It’s just been a tough year.”

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