Cushman & Wakefield recently released their 3Q 2016 New York City retail rental update and it's pretty much universally bad news for commercial real estate owners in Manhattan. Retail rental rates declined YoY in 9 out of the 11 Manhattan submarkets tracked by Cushman while vacancy rates soared to over 20% in several markets with the "Lower Fifth Avenue" corridor registering the highest vacancy rate in the city at 29.3%.
During the third quarter, asking retail rents for direct and sublease space decreased from one year ago in nine of the 11 Manhattan retail submarkets that are tracked statistically by Cushman & Wakefield. Lower Manhattan’s financial district and the Upper Fifth Avenue corridor (49th-60th Streets) were the two submarkets that had asking rental upticks year-over-year, closing at $418 and $3,213 per square foot (PSF), respectively.
Similarly to the second quarter, both the Times Square bowtie and the Herald Square/West 34th Street corridor’s availability rates remained unchanged, closing at 22.2% and 22.4%. The Lower Fifth Avenue corridor (42nd-49th Streets) kept its hold on the highest availability rate for the sixth consecutive quarter, closing the third quarter at 29.3% followed next by the Meatpacking district at 23.4%. Lower Manhattan registered the highest year-over-year asking rental rate increase at 4.8%, while its availability rate remained stable at 10.2% compared with the second quarter. The Upper Fifth Avenue shopping area, 49th-60th Streets, continues to command the highest asking rental rate both locally and globally at $3,213 PSF for direct and sublease space and $2,982 PSF for direct space only.
Ironically, commercial real estate owners on 5th Avenue's most posh stretch, between 49th - 60th streets, continued to push rents to all time highs despite vacancy rates soaring over 50% from 10.1% in 4Q 2015 to 15.9% in 3Q 2016.
But the expensive real estate on 5th Avenue isn't the only area where retailers are balking at rental rates. Vacancies are soaring in most Manhattan submarkets, including Madison Avenue...
...and Third Avenue as well.
Meanwhile, as Cushman points out, the correction in NYC commercial rents is likely just getting started as they warn that "it may be some time before velocity picks up and available retail space is absorbed faster than it becomes available on the market."
Rising availability rates on a year-over-year basis in almost every major statistical retail submarket in Manhattan has created uncertainty in the market, while new stores become available daily, adding new supply. Further compounding this uncertainty is sluggish leasing demand from retailers, whose overall margins compressed by pressure from e-commerce retailers such as Amazon.com. Asking rents have just started to decline in all of these submarkets, and it may be some time before velocity picks up and available retail space is absorbed faster than it becomes available on the market.
Frankly, we're shocked that retailers would balk at the opportunity to secure 1,500 square feet of retail space on 5th Avenue for a mere $400,000 per month...that seems like such a bargain.