"They're Finally Accepting Reality" - Manhattan Landlords Are Slashing Rents To Fill Vacant Storefronts

Owners of Manhattan's commercial real-estate might soon begin to regret their decision to hike rents to absurdly high levels in the hope of attracting the next Chase, Bank of America or Duane Reade capable of paying their extortionate prices.

As Bloomberg reports, owners of prime retail storefronts in the heart of Soho - a trendy shopping district in downtown Manhattan - are struggling to find and retain tenants willing to pay the record rents being demanded by landlords.


The Bloomberg story begins by recounting the story of one boutique clothing shop that threatened to vacate its space six years early and just eat its security deposit unless the landlord agreed to a lower rate.

The Kooples, a French clothing seller, is threatening to vacate its space six years ahead of schedule if it can’t get landlord Thor Equities to cut the rent. With brick-and-mortar stores suffering from a retail industry shakeout, the company says it isn’t making enough money at the property and wants to focus on the web.

The scene unfolding on the cobblestones of one of New York’s trendiest shopping areas shows the increasingly fraught negotiations between tenants and landlords as vacancies soar and retail rents plunge. Similar scenarios are playing out along Madison Avenue to the north and along other thoroughfares in the city that have long been a draw for those shopping for designer clothing and other luxury goods. Property owners are confronting demands once unheard of in Manhattan, from rent reductions to short-term leases.

Again and again, we've pointed to the stagnant deals and rents in some of Manhattan's wealthiest and most expensive areas as a sign that the New York real-estate market is heading for a downturn after years of torrid growth in the valuations of residential and commercial real-estate.


According to Bloomberg, after a lull in leasings, landlords are beginning to accept their new reality, according to Patrick Smith, a vice chairman of the retail brokerage at Jones Lang LaSalle Inc. It no longer makes sense to keep rents so high in the hopes of landing one of the few corporate clients willing to pay.

Indeed, "landlords are adjusting the way they do business to market conditions," Smith said. "It’s healthy. It certainly has stimulated activity."

Of course, outside of Manhattan, many landlords are struggling with an even more ominous problem: As more brick and mortar retailers close, malls and other commercial storefronts are struggling to find somebody - anybody - who would be willing to fill their vacant spaces.


As a result, American malls are being forced to close, or suffer the indignity that accompanies having so many vacant storefronts.

In Manhattan, home to some of the most valuable retail real estate in the world, a sharp rise in rents following the recession exacerbated the problem, with property owners clinging to unrealistic income expectations. Today, the glut of empty space is taking a toll, pushing landlords to make concessions to plug holes.

Some are signing shorter-term leases to draw tenants that may be reluctant to make long-term commitments. In Soho, Hermes is negotiating a deal at 63 Greene St. that gives the retailer the option to leave after one year, while a few blocks over at 375 West Broadway, Gucci signed a lease that allows it to vacate the space if sales don’t meet expectations after two years, according to people familiar with the deals, who asked not to be identified because terms are private.

Historically, a typical lease term in New York was between 10 and 15 years.

Representatives for Gucci and Hermes didn’t respond to emails seeking comment.

“Landlords, more today than in the past, are coming around to the retailer’s mentality,” said Steve Soutendijk, an executive director at Cushman. Both sides are making calculations on store sales “and how much can they pay in rent. If a store is unprofitable for them, it doesn’t make sense to keep it open.”

To be sure, these issues aren't confined to downtown - it's a problem that's beginning to manifest throughout Manhattan and even in some trendy outer-borough neighborhoods.

Downtown landlords aren’t the only ones caving. On a tony corridor of Madison Avenue on the Upper East Side, an 18,000-square-foot (1,670-square meter) stretch of luxury retail is facing vacancies. Landlord Vornado Realty Trust doesn’t expect tenants including Gucci and Cartier to sign long-term renewals to leases that expire in September given market conditions, according to mortgage documents tied to the property. It’s offering short-term agreements at lower rates to keep the space occupied, the documents show. As of last month, no deals had been struck.

Vornado, which recently paid off its mortgage at the property, declined to comment.

“Landlords have to be open-minded,” said Robert Cohen, a vice chairman at retail brokerage RKF.

In Soho, retail rents in the area have since plunged, dropping 17 percent in the past year to an average of $440 a square foot, the largest decline in all of Manhattan, according to the latest data from Cushman. But across the city, the number of new leases is falling and landlords in both retail and commercial are offering more rent concessions than they have in years.

This might soon translate to a crash in the number of real-estate deals, mirroring a dire situation that's playing out across the country, as high prices and a paucity of supply caused pending home sales to crash the most since 2010 in January.


LetThemEatRand Wed, 02/28/2018 - 22:08 Permalink

They don't need a middle class anymore, but they've forgotten that they do need at least an upper-middle class.  Even the truly wealthy only shop so often.  The giant sucking sound is getting louder and louder.

takeaction LetThemEatRand Wed, 02/28/2018 - 23:32 Permalink

Since I read ZH...I am now ALWAYS paying attention to "What is up"...and here in Portland, Oregon....there are so many commercial vacancies....it is scary.  And these vacancies are not small stuff.  Albertsons...Safeway.........Warehouses...etc.  The big spaces just sit...boarded up with For Sale or For Lease.... yet homes here are so expensive and are sold so fast.  You would think somebody could take one of these HUGE buildings and make it into a "Community".  Some of these buildings are 200,000 sq ft and more.  So your average apartment is 900 sq foot.  I see opportunity.  Who knows.  so you make the 200K sq ft building into 200 nice apartments.....no windows.  All 2 bedroom.... Rent here in Portland is $1400 a month so that would be $280,000 a month.

Sorry for the ramble....just thinking...

Back to the topic....Retail is DEAD.  Just bought an electric smoker off amazon...read the reviews.....local $400...Amazon $214 delivered.  Got it in one day.  Oh...can't wait to try my hand at Brisket.  Retail is Dead.


In reply to by LetThemEatRand

MaxMax takeaction Thu, 03/01/2018 - 07:45 Permalink

I had the same thought about re-purposing commercial space to housing, but you would have zoning problems, you have to run water, electric, sewage, comply with fire, electric and plumbing codes, etc.  By the time you are done, it would be cheaper to knock it down and use the land for prefabricated housing.

Many malls were built for the developers to make money building the mall while investors, limited partners, banks, etc, put up most the money.  Not a bad scam while it lasts, but you end up with way more retail space than is needed.  Then Amazon came a long and put a fork in it.

In reply to by takeaction

Z-Boy GreatUncle Tue, 03/06/2018 - 08:25 Permalink

The landlords are saying $440.0 a sq. ft. is reasonable.  A small shop like the one I have in ohio is 700 sq. ft.  700 sq. ft. @ $440.00 a sq. ft. works out to be:  700 x $440.00 = $308,000.00 per year divided by 12 = $25,666.66 per month.  $25,000 per month using the old rule rent being one-fourth of income, the owner would need to gross approx.one million dollars a year or over $83,000.00 a month and close to $3000.00 a day for a seven day work week.  That's reasonable?  To me that's insane.  In central Ohio, a storefront in a good neighborhood is about $40.00 per day, double that to be in a decent central Ohio mall.  I've been to NYC just two times for trade shows.  It's a big dirty city where most people live like sardines in high rise apartment buildings. Malls are closing in central Ohio too.  It seems it is either a quality specialized shop or the internet, from now on.   https://www.youtube.com/watch?v=QHA_hz0tqBU


In reply to by GreatUncle

esum LetThemEatRand Thu, 03/01/2018 - 09:23 Permalink

nyc is a giant overflowing stenching portapot at best.... the odor of bum urine barf and shit wafting thru the air.... the smell of LIBTARDS running and ruining a city which is their trademark style ... and big bird is a prime example of failed liberalism... but hey free shit and lax law enforcement, failed education and sanctuary city status gets you elected.... exactly how long before the financial house of cards collapses.... why tourists come to nyc is beyond my comprehension... schlock sold on 5th ave and substandard school plays on bway, overpriced and taxed hotel rooms and banksters on wall street look cool to chinese and iowa farmers i guess...and dont foget the 9/11 memorial to the deep state that let it happen...  

In reply to by LetThemEatRand

uhland62 hoist the bs flag Thu, 03/01/2018 - 00:38 Permalink

We have the same in Australia, Melbourne and Adelaide. You look at the real estate ads of commercial properties and wonder where these fantastic rents are supposed to come from. Well, they don't come any more. In Adelaide, empty shopfronts attract homeless and unsocial behaviour, so the City is trying to figure out what they can do. 

Years of downward pressure on wages has trickled down to the retail space - what a surprise!!!

In reply to by hoist the bs flag

keep the basta… uhland62 Thu, 03/01/2018 - 07:36 Permalink

The huge private debt ...mortgages.. plus high rents has cut right down on disposable income in Aus. Like 1.7 million for a 1940s 2 bedroom on 360 metres so massive loan and daily grateful because there is some lawn. No way paying off that apart from working full time forever plus and no money or time to afford kids.

Plus I see a whole generation who can't have kids as they can't bring themselves to breed in shitty flats. Meanwhile the politicians all have multiple negatively geared properties against their income.. one has 33 I read. So they keep migrant inflow, retain neg gearing, and keep the money laundering by property on the go.

Steve Keen shows that private debt is the killer of the economy.

In reply to by uhland62

khakuda Wed, 02/28/2018 - 22:15 Permalink

So many vacancies. Moved out 8 years ago and some storefronts still empty. 

Too high selling prices needed to cover High rent + high taxes + high regulation + high utilities + high staffing cost + high insurance at a time of cheaper, doorman delivered online alternative = death

Sonny Brakes Wed, 02/28/2018 - 22:35 Permalink

We need to come up with a disrespectable moniker to describe this state of affairs. Something condescending that the insensitive MSM can throw around. Phrases such as 'the rust belt' and 'the flyover states'.

techpriest BarkingCat Thu, 03/01/2018 - 00:13 Permalink

No, the retail investor putting money into his 401k is one of Wall Street's biggest supplies of never-ending money. Along with the retail buyer of insurance funding the insurance company which turns around and gives the money to Wall Street. Maybe Amazon can go direct to the source.

Get the Fed involved and then they really will have worked around Wall Street.

In reply to by BarkingCat

Blankenstein Thu, 03/01/2018 - 00:07 Permalink

Can't buy a lot of clothes, furniture, housewares, etc. when house prices and rents (along with property taxes) take up such a large portion of paychecks.  

JPMorgan Thu, 03/01/2018 - 02:53 Permalink

It's inevitable that rents must drop.

How long can a commercial property stay empty until it becomes a loss making financial burden for the landlord. 

With that said it is just another boom bust cycle.


torabora Thu, 03/01/2018 - 04:49 Permalink

In Sacramento they ripped out blocks of underused commercial to put in a Kings basketball franchise stadium. Now it too sits underused most of the year and the old stadium a few miles away is just....not used.

truthalwayswinsout Thu, 03/01/2018 - 06:47 Permalink

The internet was the "Great Hope" of the middle class and people starting companies. They finally had marketing power over the largest of large.

Well that was until Google came along. Google destroyed the web and has more than decimated new business start ups. Do something unique and legitimate and try to get on the front page of search on Google.

If you live in the wrong zip code you are doomed because Google purposefully screws companies from conservative areas. And even if you don't live in the wrong zip code the scam that is page rank allows them to manipulate all the results. Search Google for a real product and watch who comes up; Amazon,Walmart, etc. No one new or that you don't know.

What it really means is no middle class, and no upper middle class, and did I forget to say everyone and everything will be the same, mediocre with no real individuality any more.

Buck Rogers Thu, 03/01/2018 - 07:42 Permalink

Rents will drop and tenants will return to the busy spots.  Consumers will always pay a premium for convenience. Yes Amazopoly will take a big slice of retail but watch physical stores make a triumphant rebound when desperate property owners adjust to the new reality. 


Amazopoly cannot replace services. Restaurants, salons, gyms, professionals, showrooms, experiential retailing, etc.  They will all eventually move back to street level in time. 

And maybe Amazopoly will get hit with some antitrust claims finally.