Asking Retail Rents Drop Further in Manhattan Last Quarter

Manhattan retail leasing continued to decelerate in Q1, but there is a light at the end of the tunnel.

In Manhattan’s prime 16 retail corridors, the average retail asking rent dropped 13.4% year-over-year and 5.1% quarter-over-quarter to $618 per square foot in Q1 2021. Q1 was not only the 14th straight quarter that average asking rents fell but it also posted the lowest levels in a decade, according to CBRE. 

The aggregate asking rent among all 16 corridors decreased 5.2% quarter-over-quarter and 20.3% year-over-year to $533 per square foot, according to CBRE. Tenants continue to receive generous improvement allowances and free rent periods, lease flexibility through termination clauses/renewal options and percentage-rent deals.

Prince Street in SoHo posted the largest decline of Q1 2021 at 39.5% as asking rents fell from $683 per square foot. to $414 per square foot. year-over-year. Pricing dropped below $500 per square foot in the corridors, falling to levels not seen since 2014.

The second-highest annual decline was found in Washington Street in the Meatpacking District, where asking rents fell 28.2% from $575 per square foot to $413 per square foot. Like Prince Street, the ongoing repricing of premium spaces that have been marketed for over two years and with the introduction of several new discounted offerings that pushed prices down, according to CBRE.

In Broadway in SoHo, average asking rents fell 26.2% year-over-year and 6.7% quarter-over-quarter to $310 per square foot, the lowest rent level since 2010. With TUMI, Target, and PacSun signing leases, there are positive signs in the corridor. CBRE says landlords are continuing to reprice on spaces that have lingered on the market for multiple years.

In the Times Square corridor, which was hit hard by pandemic-related tourism disruptions, landlords suffered a 21.5% annual decline in average rents, from $1,647 per square foot. to $1,293 per square foot. There are signs of hope in this submarket with tenants including Jollibee and Taco Bell Cantina recently signed long-term leases. CBRE says the area may soon provide multiple options for opportunistic tenants who were previously priced out of this submarket.

Across Manhattan’s 16 shopping corridors, the number of direct ground-floor availabilities increased 4.2%, jumping from 264 to 275 quarter-over-quarter.

Despite the soft market, there were a number of large retail leases completed during Q1 2021. They included Gucci America Inc.’s 46,203-square-foot. lease at 721 Fifth Ave.; Trader Joe’s’ 28,000-square-foot deal at 121 West 125th St. and Brooklyn Fare’s 21,600-square-foot commitment at 75 West End Ave.

Other reports also paint a picture of retail struggles in the broader New York City metro. The city suffered a 7.7% decrease in asking retail rent in 2020, which was the second-largest drop in the country behind San Francisco, according to Marcus & Millichap.

New York has one of the tightest vacancy rates in the country among major markets. Still, new supply should push vacancies by 1.2 million this year, bringing the vacancy rate to 4.5%. Marcus & Millichap says vacancy is 100 basis points above the pre-pandemic level but below rates recorded in 2007. Overall, vacancy increased 60 basis points in 2020, driven by a 90-basis point increase in multi-tenant properties.