Retailers from China and Korea, Germany, the Netherlands and Latin America are scouring city streets for deals they could have only dreamed of in the past. Additionally, Italian and Aussie fashion companies that tested out the market with pop-ups (and liked it) now want a more permanent piece of New York’s retail pie.
“There are more foreign tenants from a wider variety of countries — not just the UK, France and Italy,” says Joel Isaacs, president of Isaacs and Company. “There is definitely a good population of European and foreign brands.”
With rents finally dropping to a deal-making level, the smart companies are rushing to stake out locations they love.
And most building owners are now ready to give them a hand up with handouts. In the past, concessions of any kind would have been laughed at. Now, owners are being creative to lure tenants.
In some cases, especially in new towers, owners have provided full build-outs to deliver turnkey spaces. They are waiving percentage rents (arrangements in which the retail tenants pays their landlords a percentage of their gross sales) for the entire lease, and have delivered other perks from air conditioning to outdoor spaces.
“It’s an adjustment to the market,” says Richard Skulnik, executive vice president of Ripco Real Estate. The owners, he says, want to know: “How can I be competitive?”
As word of plunging rents spread last fall, tenants decided it was time to look, Isaacs says. “It’s hard to time the bottom of the market.”
But now brokers and owners report activity and tours have taken on a frenetic pace as the new year rang in and contenders raced out of the starting gate.
“There is a belief that rents have stabilized and if you want to make a deal, it’s a good time,” says Joanne Podell, executive vice chairman of Cushman & Wakefield. “This means if you need to grow your business, you make a commitment.”
As to the high-priced superstore mega deals that are touted for special spaces, Skulnik calls them “outliers in every shape and form.”
The end of last year, for instance, saw Levi’s trade for a newer 17,250-square-foot flagship in Times Square at Vornado Realty Trust’s 1535 Broadway, where it will open later this year.
And FAO Schwarz will be playing around in 19,000 square feet in Rockefeller Center after being storeless in the city for two years.
Similar to what is occurring with office tenants, many retailers are also “rightsizing” by taking smaller spaces that are more in line with their urban locations, sales volumes and customers who don’t like traveling up and down numerous floors.
Take Lord & Taylor, which is lopping off the top of its building in an $850 million sale to Rhone Capital and WeWork.
The latter will use the upper floors for coworking space while the department store downsizes in the base to better fit its own sales needs and customers.
Target, which has sprung up in various neighborhoods with its urban format, and was one of the most prolific lease-signers in 2017, is also on the prowl. Now that Kmart locations are opening up, some may prove a match for the cheap, chic newcomer.
Vacant retail condominiums that have been stagnating are now being pitched for sale to end users such as medical offices, nonprofits and others that can benefit from an ownership tax structure. “The pricing is not [as high as] it was two years ago,”says Adelaide Polsinelli, senior managing director of Eastern Consolidated. “But it doesn’t make economic sense for someone who wants to control their future to lease.”Forever 21, which briefly had a spot in a high-rent swath of Fifth Avenue, is now trying to lever its way into a cheaper space between 46th and 54th streets, sources say.
Retailers were “cautious” with their inventory for the holiday season, says Faith Hope Consolo, chairman of retail at Douglas Elliman. Rather than competing head-to-head, she says online divisions of retailers are now working in tandem with their brick-and-mortar counterparts.
“I’m feeling positive because the retail numbers were good, and while there was plenty of online shopping, there was plenty of in-store shopping,” says Consolo.
Retailers are also adapting to the changing environment with experiences that make going to the actual store memorable.
For instance, as barricades rose around Trump Tower, there were worries customers were not making it into the adjacent Tiffany flagship store on Fifth Avenue.
The jeweler has since added a turquiose-toned café that riffs on the movie by serving up breakfast at Tiffany’s (as well as lunch). Now there is often a line.
“Everybody said no one will come to New York because of Trump, but we had a record 62 million tourists,” says Consolo. “It’s not only the shopping city, it’s where everyone wants to live and work.”
While there’s plenty of chatter about vacancies, Skulnik says, “Great spaces lease in any market. But bad space with low ceilings and too many columns won’t lease in any market.”
Tenants are now hoping to cash in and secure great spaces before they once again have to face leftovers.