NYC Consumer Spending Will Increase 20% Over 2019

New York City’s retail sector has continued to improve across all five boroughs, with increased consumer spending driving the recovery. According to a forecast from Marcus & Millichap, consumer spending in the Greater New York City market will increase 20% this year over 2019 activity, and the foot traffic has nearly returned to pre-pandemic norms.

The retail spending has translated to improved fundamentals for retail assets. Asking rents in Queens and Staten Island has already recovered to pre-pandemic levels and are currently approaching all-time highs for single-tenant assets. Due to widespread work-from-home policies, Manhattan and Brooklyn are further from full recovery than the outer boroughs, although office leasing rebounded significantly in January, illustrating the potential for recovery in these submarkets. As companies return to the office, retail foot traffic and spending is expected to follow.

In the interim, the Marcus & Millichap report recommends that investors seek mixed-use opportunities to hedge against uncertainty in retail in Manhattan and Brooklyn. In these markets, mixed-use properties are trading with yields in the low-4% to 5% range, roughly 100 basis points under the current market average, according to the report. In the outer boroughs, however, single-tenant deal dominated, reaching a multi-year high.

Overall, the recovery supported increased vacancy rates, up .8% and only a nominal increase in retail vacancy, up 10 basis points. This year, retail supply is expected to grow, with 1.6 million square feet currently under construction.

Late last year, Marcus & Millichap predicted an uneven comeback in New York City’s retail market. New York 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. While the pandemic put downward pressure on demand, supply is growing. In 2020, 907,000 square feet of retail space was completed. M&M says that construction is limited in Manhattan. But it is more active in the surrounding boroughs, especially in South Brooklyn and Northeast Queens. It expects 1,733,000 square feet to be completed as the pace of delivery nearly doubles what arrived in 2020. The average amount of square feet of what opened over the past decade was 1.5 million square feet, by comparison.