Retail has been evolving in New York City, and the market reset experience will continue and come into full swing throughout 2019. Overall deal volume for retail increased 10% year over year. No doubt, the majority of this activity is attributed to the food and beverage industry, followed by retail apparel, as well as eCommerce brands entering the bricks-and-mortar field. As pop-up shop activity slowed at the close of the holiday season, expect additional new leasing activity as fresh, eCommerce based retailers opt to potentially extend their commitments with a bricks-and-mortar physical store. In addition to these “pop-up-to-permanent,” tenants, food and beverage users continue to drive the bulk of the leasing activity.
According to The Real Deal, the top retail lease of 2018 based on greatest annual rent was McDonald’s new lease at 1530 Broadway in Times Square, feeding into this food and beverage trend. Cushman & Wakefield’s Andrew Kahn and Christian Stanton represented McDonald’s in its 7,000-square-foot (sf) lease totaling about approximately $11.5 million per year in aggregate rent. Cushman & Wakefield was also involved in the second most valuable retail transaction of 2018 when Steven Soutendijk, Michael O’Neill, Jason Greenstone, Alan Schmerzler and Sean Moran represented sportswear giant, Puma in its 24,000-sf flagship at 609 Fifth Avenue, the former American Girl space. The annual rent on its 15 year lease totals $8.9 million annually.
As stated, the retail market is moving through a correction and throughout 2018, asking rents continued to descend in Q4 2018 in the majority of the high markets. Though there continues to be substantial decreases in asking rents, there is a sense that in most retail submarkets, economics have hit “bottom.” Year-over-year, the Madison Avenue corridor (East 57th-East 72nd Streets) posted the greatest decrease, plummeting $235 per square foot (psf)—a 16.6% decrease, closing the fourth quarter of 2018 at $1,178 psf followed by Lower Manhattan, down nearly 14.0% to $362 psf from $419 psf in 2017. The next high market to show a significant decrease in its retail asking rent was the Lower Fifth Avenue corridor (42nd to 49th Streets), down 12.5% to $996 psf from $1,138 psf at year-end 2017, its lowest rate in six years. Upper Fifth Avenue, the luxury corridor (49th-60th Streets), however, remained stagnant, with no new leases signed in 2018.
Retail availability rates posted sporadic results for all the major markets at the close of 2018. Throughout the year, the availability rate for Herald Square/West 34th Street remained unchanged at a hefty 32.8% due to a lack of activity. Lower Fifth Avenue (42nd-49th Streets) supplied all of the Fifth Avenue action during 2018 with five new retail lease commitments including retailers Five Below, Puma, and L’Occitane to name a few, resulting in an 11.2 percentage point slide year-over-year when the availability rate registered a high of 34.5%.
All in all, the New York City macroeconomic environment continues to be cautiously optimistic with healthy consumer spending and densely populated city streets driven by steady income growth coupled with low unemployment. New York City continues to dominate in commerce, culture, and tourism and is in no danger of relinquishing its spot as the most important city for retailers in the United States.