Manhattan Retail Rental Prices Drop, New Tenants Attracted

By: Hellen Zaboulani

Retail rental prices in Manhattan dropped by the steepest amount in five years, with the heftiest drop reported in Times Square.

As reported by Bloomberg, average asking rents fell 14 percent in the fourth quarter of 2021, compared to the previous year throughout Manhattan’s prime shopping districts, as per brokerage firm Jones Lang LaSalle Inc.  Retail rents in Times Square, the tourist center, fell harder than most – roughly 37 percent- as landlords dropped prices to entice new tenants, the report said.  The next biggest tumble was in Madison area, the high end boutique area, where rents fell 21 percent. Other streets which posted heavy declines include Herald Square and SoHo, which were down 14.1 percent and 13.7 percent respectively.

In an effort to lure new long-term tenants, landlords offered discounts, including up to 12 months of free rent for new leases, or in some cases promising improvements to spaces.  The data showed that retailers are taking advantage of the discounts, leading the number of leases to increase 24 percent over the last quarter.  Landlords’ effort in lower prices are working, as the shares of available space dropped to 27 percent, after reaching a record surplus in retail space in 2020.  “Decreased availability correlates directly with the surge in leasing activity, as retailers continue to capitalize on market conditions to secure high-quality spaces at a discount,” JLL said in the report.

The Big Apple’s retail market has been devastated by the COVID-19 pandemic.  Travel restrictions, social distancing concerns, mask mandates and the shift to work-from-home employment have worked to shrink foot traffic across all the city’s famed shopping districts.  Over the past two quarters, stores have seen an increase in sales with employees slowly returning to their offices, more people coming back to live in the city and tourism beginning to rebound.  Still, uncertainty remains as new Covid-19 variants are found, leaving retailers wary of the heavy expenditures historically associated with retail space in Manhattan.

In a way, the situation presents a rare opportunity for certain businesses to take on spaces previously inaccessible to them.  As per the NY Post, in Third Avenue between 59th street to 79th street, for example, doctors and dentists offices are taking on the retail space.  Once a hub for sportswear, the area which suffered big vacancies from store closings including GAP and American Apparel, is now turning into a corridor of healthcare clinics and veterinarians. “Maybe landlords preferred traditional retail tenants, but they had to change their opinions,” said CBRE broker Rob Bonicoro, who represents several health and medical tenants.