Retail rents are tumbling in Manhattan, especially in the toniest neighborhoods.
In the area around the Plaza Hotel on Fifth Avenue, home to the borough’s priciest retail real estate, rents fell 13.5 percent in the second quarter from the previous three months, the largest decline among the 16 neighborhoods tracked by brokerage CBRE Group Inc. The drop was due in part to a single space that had its price cut from $3,500 a square foot to $2,500, CBRE said in a report Tuesday.
Tenants have the upper hand in New York as landlords contend with a record number of empty storefronts. Across Manhattan, 143 retail slots have sat vacant for the past year, and rents have been reduced on more than half of those spaces, CBRE said. Property owners are increasingly willing to negotiate flexible terms in an effort to get tenants to commit to leases, according to the report.
After the recession, many investors saw retail as “one of the darlings” of real estate because of how quickly rents bounced back, according to David LaPierre, vice chairman of CBRE.
“We prospered quite well,” LaPierre said during a briefing on the report. But since mid-2016, “we’ve seen a pause. The slowness we saw was retailers trying to figure out, not just in New York City, but how to manage overall growth.”
The pace of declines may be slowing. Manhattan-wide, average asking rents fell 12.1 percent from a year earlier to $658 a square foot, according to CBRE. That compares with a 19.5 percent annual decrease in the first quarter.
The most active category was food and beverage, with 97,338 square feet (9,043 square meters) leased across 29 transactions in the second quarter. Apparel followed, with 74,888 square feet over 14 deals. The largest apparel lease was by sneaker-maker Puma SE, for 21,003 square feet at 609 Fifth Ave.