Manhattan Retail Rents Are Up 8% As Luxury Brands Boost Recovery

More prime Manhattan storefronts are filling up in 2023 as the embattled retail sector continued to show signs of stabilizing after years of pain.

Average asking rent in Manhattan’s retail corridors was $638 per SF in the first quarter of the year, the third quarter in a row with a quarterly increase, and 8% above Q1 of last year, according to a new CBRE retail report.

The number of ground-floor space availabilities dropped from 222 to 206 in the 16 premier shopping corridors in the borough that CBRE tracks, an almost 17% year-over-year decrease in availability.

Improved tourism numbers, demand for luxury products and what is being termed “revenge retail” are driving the recovery metrics. Still the outlook amid ongoing worldwide economic challenges is far from rosy, with predictions that retail may bear the brunt of any slowdown over the next few months.

“We are also aware of a lot of economic uncertainty and a lot of issues tenants are going through at the moment," CBRE senior analyst Hiro Imaizumi, the report’s author, said in an interview. "So with that positivity, keep in mind that there's economic fundamentals such as unemployment, consumer confidence slowing down."  

The report also pointed to fears that trouble in the banking sector will put pressure on consumers and slow their spending, compounded with the impact of the Federal Reserve's rate hikes. Unemployment in the city is at 5.4% as of February, well above the national unemployment rate of 3.6% and above the city’s rate of 3% just before the pandemic. During the worst of the pandemic, the city’s unemployment rate hit 21.4%.

Overall, rents are still nearly 43% lower than they were in 2014, the peak of the market, and concession packages and flexible leasing arrangements are still present in deals.

Imaizumi said overall pricing may never return to peak levels, but certain markets are already well on their way to pre-pandemic pricing. The determining factor depends on if the area has access to multiple shopping populations.

The Flatiron area is a standout performer, he said, mainly because of its proximity to Chelsea, a major residential area, as well as high-traffic tourism areas like Union Square and young shoppers from NYU.

“To make it simple, [retailers] want young people with money, they’re the best consumers,” he said. “People are sort of going out with that money again and that's why I think tourism in New York is back and that’s a great thing.”

Despite looming economic concerns, the figures from the quarter paint a positive picture after major blows over the last few years, starting well before the pandemic set in. In the first quarter of 2023, the rolling four-quarter aggregate leasing velocity was 2.2M SF, a 5.4% jump on the quarter before and a nearly 15% year-over-year increase.

From a leasing perspective, the Flatiron and Union Square area performed the best throughout the quarter with 100K SF leased across 12 transactions. Among them was Aqua Restaurant Group’s 26K SF lease at 902 Broadway and J.Crew's renewal for 27K SF at 91 Fifth Ave. The area saw a 68.2% year-over-year drop in availability, with just seven spaces left. Average rent was $349 per SF, a 20.4% year-over-year jump.

Farther north, in the Plaza District, LVMH leased 43K SF at the Trump Organization's 6 East 57th St. for a new Louis Vuitton story, and Burberry announced a temporary lease at 693 Fifth Ave. spanning 14K SF.

That space was previously leased by Valentino, which sued the property's owner during the pandemic claiming it should be allowed out of its lease there because of the virus-enforced closure orders. The retailer, which settled the dispute last year, was one of multiple retailers that tried to sue to get out of the leases across the city during the pandemic.

“One of the major retail drivers is the luxury market. New York remains one of the capitals for any luxury brands who want to make it,” Imaizumi said. “But I think one of the other things that we saw, in addition to luxury brands, are flurry of contemporary brands as well entering the market.”

In SoHo, another previously hard-hit area, H&M is opening an 18K SF store at 591 Broadway and Abercrombie & Fitch took a new lease of 9K SF at 547 Broadway. On Spring Street in that neighborhood, average rents were $540 per SF, 20% higher than last year.

In terms of size, behind the LVMH deal, Barnes & Noble’s 34K SF deal at 557 Fifth Ave. was the largest lease of the quarter. Health Club TMPL was the third-largest lease of the quarter, taking 27K SF at 200 Madison Ave.

Behind Flatiron, the Upper Madison Avenue corridor saw the biggest decrease in availabilities, recording a year-over-year drop of 23%.

The Meatpacking District’s 14th Street corridor recorded an increase — the only one in the borough during the quarter — with available space going up by 45% from last year to 16 listings, per CBRE. Washington Street in Meatpacking recorded a decline in asking rent, with the average price per SF at $437, a 8.8% year-over-year decrease.