Pre-Y2K retail market is strong and competitive

The retail leasing market in New York City is extremely active. Store sales volumes are high and credit-worthy chains, are competing with each other for the prime locations. I haven't seen any signs of demand weakening. However, with asking rentals at an all-time high, even for secondary space, some chains have decided not to become part of the "feeding frenzy."

New construction has created additional expansion opportunities for retailers. However, with these new opportunities, retailers have become more selective about which sites they pursue. As an agent, the general feeling is that with the large number of availabilities, everything will rent. However, when and for how much is another story.

With respect to location, the following is the general order of desirability: 1) corner location; 2) avenue location - mid-block; and 3) major cross-street - mid-block. In the past, choice three was usually rejected out of hand. But in today's market, if the footprint and rent make sense, then national tenants will definitely look and seriously consider moving forward.

In the 5,000 square-foot to 10,000 square-foot size range, the drug store chains are competing with each other for the same locations, driving up the rentals, in some cases above the asking rental.

Establishing asking rentals that ultimately result in closed deals is still a painstaking process. In today's marketplace, it is not uncommon to have more than one leasing proposal at the asking rental for a "ground-zero" location, assuming the asking rental is not too far-fetched. Asking rentals for "A" retail locations are priced at an all-time high, making "B" locations look attractive.

For a non ground-zero location, owners have to be more sensitive and knowledgeable about what asking rental they should use in relation to what deals have been closed in the area and what rental they can reasonably expect to achieve. Deal comparables have to be scrutinized in order to be judged properly. Percentage of sales clauses in leases as additional rent also play an important role, especially in restaurant transactions. I can't justify my asking rentals anymore.

Virtually all sizes and configurations of space are available in Manhattan today to suit any of the discriminating retailers' needs. There is something for everyone. Some of the properties are in areas being developed and require the retailer to be somewhat of a pioneer.

One such area is part of Chelsea, specifically Avenue of the Americas north of 23rd Street. Experienced retailers and restaurateurs are willing to pay $45 to $60 per squarefoot for large units, i.e. 3,000 to 6,000 square feet for small street-level space and more for smaller ones. Whereas, below 23rd Street, the rentals are $100 per square-foot for small street level space. In Manhattan, $45 to $65 per square-foot rentals typically are representative of emerging market areas.

In the residential shopping areas of Manhattan, there is a tremendous amount of construction fueled by the limited availabilities of residential living space. At the base of these new apartment buildings is retail space consisting of as little as 5,000 square feet, and going up to multi-level units of 25,000 square feet or more, depending upon the lot size. In existing buildings, vacancies are at their lowest in years, with new residential construction creating expansion opportunities for both boutique chains and big box tenants.

The market is very buoyant now, and stores of all sizes and uses are looking to expand in the New York area, including fast food chains, apparel and accessory stores, while stores under 3,500 square feet in size have the lowest vacancy rate and availabilities are very difficult to find.

COPYRIGHT 1999 Hagedorn Publication
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