How Well Can New York Adapt To The Challenges Of Today’s Volatile Retail Market?

New York is still the premier retail market in the U.S. thanks to its density, selective retail development and large residential, worker and tourist populations. The city is faring better than smaller retail markets in adapting to the structural changes and cyclical hardships impacting the country, according to a new report by CBRE.

Nationwide, a host of challenges has led to an increase in store closings and has raised questions about the future of brick-and-mortar retail business. From a shift toward experiential shopping to the rapid expansion of the e-commerce sector, traditional vendors can no longer keep pace.

The New York City market is not immune to these challenges, but the unique dynamics of the market point to long-term strength. While local demand fundamentals remain on solid footing, getting back to market stability will require downward rent adjustments along many retail corridors.

The scale and depth of New York City’s retail market is a buffer against challenging economic times. The city’s retail sales have grown for seven straight years, with robust demand supporting a large, diverse landscape of retailers. Nearly all demand indicators are poised for future growth.

The biggest challenge to the city’s retail market is high rent.

Retail asking rents surged during the economic recovery after the Great Recession, a trend that far outpaced growth in retail sales activity. Many retailers now find it unaffordable to continue in the market, contributing to a rise in available storefronts along Manhattan’s main retail corridors. Landlords will likely need to continue to sweeten lease terms to stabilize the market.

As rents stabilize, New York’s strong demand fundamentals leave it well-positioned to adapt to the changing retail realities. While some retailers feel the pinch of competition from internet-based retailing, much of this e-commerce goes to brands with a strong brick-and-mortar presence. This trend demonstrates the power of an omnichannel retailing strategy, which many New York City retailers have begun to embrace.

While some of the market has fallen victim to overexpansion, growth from food-and-beverage operators, discount retailers and international brands in the city continues.

Increasing pressure on department stores has led to closures across the country, but the city’s shopping environment is far less dependent on department stores to drive foot traffic, making it less vulnerable to this shift in the market.

Meanwhile, a change in spending from goods to experiences has driven the growth of experiential retail. Major sports brands like Nike and Adidas have redesigned their flagship stores, offering product tryouts and fitness zones. Fashion retailer Bonobos has pioneered the “guideshop,” where visitors can test out the fit of clothing before ordering the product online.

Some Manhattan shopping corridors are well-positioned, while others face challenges. Retail submarkets faring well include SoHo, the Meatpacking District, Times Square, Flatiron and Downtown. Those facing the biggest challenges include Upper Madison Avenue, Fifth Avenue from 42nd to 49th streets and 49th to 59th streets, and Herald Square.

Read the full report here.

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