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NEW YORK CITY-Asking rents for Manhattan retail space have dropped 11% over the past six months to $115 per square foot, the first meaningful decline since the post-9/11 downturn, according to the Real Estate Board of New York. REBNY’s “Spring Retail Report,” released on Thursday, says the decline reflects a needed market correction following a seven-year stretch of sharp increases in asking rents, which in most retail corridors reached an all-time high last fall.

“Declines in asking rents have just begun to be reported although the retail market has been feeling the effects of the recession for some time,” says REBNY president Steven Spinola in a release. Michael Slattery, SVP of REBNY, tells GlobeSt.com. “Retail asking rents have begun to reflect the effects of the recession,” he explains “Since September 2008, the turmoil in the financial sector has reverberated through the real estate industry and retail market. The decline in average asking rents is a reflection of these larger economic conditions and an anticipated correction in the market that was experiencing unsustainable rent growth.” Rents went up 54% between fall 2001 and the fall of ’08, according to REBNY.

Slattery adds, “Despite these declines and the growth in sublet space, leasing activity is still occurring in the market and new retail tenants are looking for space in New York for the first time. We expect that national retailers not presently in New York will see these declines in rent as an opportunity to enter or expand in the New York market.”

According to the spring 2009 report, retail rents were down overall in each of the Manhattan geographic areas surveyed with declines ranging from 6% in Midtown to 22% on the West Side compared to fall 2008. The report cited a 12% drop in East Side asking rents, 13% declines for Downtown and Upper Manhattan and a 14% reduction for Midtown South. However, some corridors within those geographic areas showed modest increases compared to six months ago, including Fifth Avenue in the Flatiron District and Broadway in Soho.

“Our advisory group noted that in this economy owners are uncertain about what is an appropriate asking rent,” the report states. “Hence, they do not modify the asking rent which could have been set as much as a year ago. Instead, they would offer a longer freerent period and a more generous build out allowance. These economic incentives varyfrom owner to owner.”

An emerging issue, according to REBNY’s report, is the rise in sublet space, and subsequent editions of the twice-yearly report will examine the asking rents for sublet space listings. “Those listings that reflect market conditions–comparable rent with a term of seven years or more–in a particular location will be included,” according to the report. “In situations where there are sublet listings with shorter lease terms, we will attempt to determine if these subleases are likely to be converted to long-term leases with the participation of the building owner. Those listings, however, in which the asking price reflects economic distress of the tenant and is significantly lower than other available space in the market will be omitted.”

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