NEW YORK CITY—Figuring out the winning formula of how retailers can best work with Internet sales remains elusive.

Richard Wagman, managing partner at Madison Capital, wryly stated after Amazon put almost every bookstore out of business, the company opened a bookstore at the Time Warner Center—“and it's horrible.”

“I don't get it. Amazon said, 'You have to see our store at Columbus Circle. It's a real experiential store,'” said Wagman. “I walked into the store and I was like, 'Actually, it's kind of like a sh*tty Barnes & Noble.'”

Real Estate Board of New York panelists on Wednesday confronted the blunt facts facing retail. During the past 15 years, real estate professionals pushed and expanded to add urban, street-level, retail shops throughout the city. Sales had increased by 7% to 9% and rents went up as well. However, that story has changed.

“In New York and around the country, in 2014, rent had outpaced sales growth significantly,” said Wagman. “Internet sales are projected to grow 9% a year for the next 10 years, more than doubling the amount of Internet sales, reaching as high as 25% in the next decade.”

Plus, only 10% of online businesses make money. They actually lose money, according to Brad Mendelson, vice chairman at Colliers International. He said this is because people buy things, wear them and return them. They buy multiple sizes to figure out their own size, then send them back—with the retailer paying for restocking and postage.

Wagman concluded retailers have to focus their strategy. “You have to be thinking about what is going to work best with internet sales and brick and mortar,” said Wagman. “Instead of fearing Internet sales, you have to take advantage of them.”

Wagman and Mendelson were two of the panelists at the REBNY members' luncheon and meeting titled “What's 'In Store' for NYC Retail,” held at the New York Hilton Midtown on Wednesday.

REBNY president John Banks greeted the audience. Kevin Wang, owner of KRW Realty Advisors, next introduced the speakers. In addition to Wagman and Mendelson, Robin Abrams, vice chair of retail at Eastern Consolidated, served as the moderator. Michael Goldban, SVP of retail leasing at Brookfield Office Properties, was also a panelist.

As retail changes, so does its location. Goldban traced the success of Brookfield Properties which focused on Lower Manhattan and Midtown West. He noted the migration of blue chip office tenants from the Plaza district, followed by apartments and developers, then retail coming along, which helped to create strong neighborhoods.

“Especially with Internet sales, retailers are going to come to New York City and they're going to do their flagship opportunities here, in neighborhoods in New York and surrounding areas,” said Goldban.

However, he noted when one of the national, old line brands opened a flagship store without doing anything unique, his team scratched their heads, wondering if this was a lost opportunity. Mendelson agreed that retailers need to provide experiential reasons motivating shoppers to come to their stores.

All of the panelists agreed that now there is much more availability of retail properties than demand.

Vacancies on Bleecker Street in the West Village, in Soho, Madison Avenue and now in the 60s and 70s reflect both Amazon in the marketplace, and rents escalating to such high levels that forced properties to only serve as flagship stores. Yet with such high expectations of rents at flagship levels, fewer tenants are renting properties.

The panelists also agreed that retailers will need to drive innovations to succeed. They cited Warby Parker and Sweet Green as examples of retailers who figured out nimble ways to use Internet technology to enhance experiences with their products and services. Goldban described how Brookfield Properties emphasizes experience. For example, catching the food trends in Brooklyn, they provided a Whole Foods and now see a bright future with Amazon's purchase of the gourmet market.

Brookfield also focuses on public space and placing art, music and culture at their properties to bring people and to convince them to return to retail spaces. They encourage pop-up stores in their indoor spaces, with retail offerings changing every three to six months.

Wagman expressed skepticism towards pop-ups serving as a long-term solution for retail. He noted they could work for indoor halls but street-level retail property owners want long-term tenants, so investments in the property would make financial sense.

Looking to the future, Abrams asked the panelists what advice they offered for retail investors. Although they had agreed on many facts facing CRE professionals, each provided different perspectives.

Wagman said it was a matter of working hard, being creative and anticipating the shifts in the inudustry. Mendelson noted although he believes retail rents would go up, a market correction is occurring and rents will not rise to the levels of three years ago, anytime soon. However, he emphasized, “At the right rent level, everything rents.”

Goldban said all New York real estate professionals are optimists. They are in this work because they believe in New York and believe in the market. He predicted rental prices will rise but choices could depend on an investment timeline. If the investors are patient or can wait they can hold onto their property, doing a deal under better market conditions.

NEW YORK CITY—Figuring out the winning formula of how retailers can best work with Internet sales remains elusive.

Wagman and Mendelson were two of the panelists at the REBNY members' luncheon and meeting titled “What's 'In Store' for NYC Retail,” held at the New York Hilton Midtown on Wednesday.

All of the panelists agreed that now there is much more availability of retail properties than demand.

Looking to the future, Abrams asked the panelists what advice they offered for retail investors. Although they had agreed on many facts facing CRE professionals, each provided different perspectives.

Instant Insights /

REBNY Panel Confronts Gap Between Retail Sales and Rent

Related Stories

Recommended For You