DECEMBER 2015
a JLL retail research point of view
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
It’s a safe bet that most of the 56.4 million visitors to
New York City last year did some shopping. They come
here for the city’s unrivaled selection of goods in a
metropolitan environment like no other. From a visitor’s
point of view, shopping destinations like Times Square,
Fifth Avenue and SoHo are more vibrant than ever. But
for those who track leasing activity in those areas, the
numbers show something different. While retail rents
remain exceptionally high, leasing velocity in terms of
both number of deals and total square feet appears to
be slowing. This report examines that trend and offers
one explanation of its cause, and how it may soon
change. Further, it looks at the types of retailers that
are leasing, the share of foreign versus domestic
retailers and recent shifts in asking rents.
Retailers by Type – Manhattan, NY
The data in this report comes from retail leases signed from January 2013 through November 2015 in Times Square, Plaza District, Upper East Side, Midtown, Penn Plaza/Herald Square, SoHo,
Upper East Side and Meatpacking District.
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JLL | Retail Research 1
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
Tenants wait on sidelines
Market watchers in these key retail trade areas have reported a recent slowing in the velocity of leasing activity. Lease deals are not
getting done, they say, as many tenants wait on the sidelines in the hopes that rents might drop. Our lease data bears this out; both the
number of leases and the total square feet leased has fallen. If the mismatch between owner and occupier rent expectations is the cause
of slower activity, when might the situation change?
A Slowing Retail Lease Velocity
800,000
120
100
600,000
80
500,000
400,000
60
300,000
Leases
Square Feet 700,000
40
200,000
20
100,000
-
2013
2014
Sum of Total SF
2015
Number of leases
Interest rate growth offers hope for leasing volume
A mismatch between the rents owners are willing to accept and what some retailers are willing to spend may have led to our current
situation of lower leasing volume. But many believe that this is a short-term situation. Some owners, operating in an environment of
low interest rates, may currently be holding out for higher rents. As we move into 2016, the likelihood of increased interest rates can
only grow. When the Fed does choose to escalate its target interest rate, many owners may come under added pressure to lease out
space in order to generate income. At that point, investors may be more motivated to negotiate on rents which would lead to an overall
rise in volume.
King clothing continues to dominate
Apparel retailers have continued to lead activity. Apparel and footwear retailers combined made up a whopping 72 percent of the square
feet leased since 2013.
Top five retailer categories ranked by total square feet leased. Other major categories include Men’s Apparel,
Electronics and Jewelry.
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JLL | Retail Research 2
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
Mass clothing merchants like Old Navy/Gap and Foot Locker each executed large leases in 2015. Times Square saw the biggest apparel
leasing activity this year. Midtown was where Victoria’s Secret took approximately 63,780 square feet. In SoHo, several smaller apparel
leases totaled 21,055 square feet in 2015.
But despite this activity, overall apparel leasing activity is on the decline. In 2013, when H&M and Urban Outfitters alone leased a
combined 130,000 square feet on Broadway, we saw over half a million square feet of space taken by apparel retailers. In comparison,
2015 leasing volume for apparel retailers was a little more than a third of that number. The total number of apparel leases dropped from
50 in 2013 to 11 in 2015.
Jewelry
5%
Electronics
5%
Women's Apparel
10%
Men's Apparel
5%
Family Apparel
30%
2015 Leases
by Retail Type
Footwear
10%
Beauty
10%
Accessories
25%
In 2014, foreign retail was king; In 2015, not so much
Many foreign retailers choose New York as a beachhead in their strategy to conquer the United States. It sometimes seems that new
foreign entrants come in waves. In 2015, we have seen leases from the likes of Hunter Boots in SoHo, Sephora in both Midtown and
Penn Plaza/Herald Square and Swatch in Times Square. But the overall trend of foreign entrants appears to be on the decline. In 2013,
46 percent of leased square feet came from foreign retailers. In 2015, that number had dropped to 21 percent.
2013
Foreign
46%
2014
2015
Domestic
35%
Domestic
54%
Foreign
65%
Foreign
21%
Domestic
79%
Percentage of square feet leased by foreign and domestic retailers through November 2015 in Times Square, Plaza District, Upper East Side,
Midtown, Penn Plaza/Herald Square, SoHo, Upper East Side and Meatpacking District.
In all but Times Square, there has been a significant amount of foreign leasing activity.
Percentage of square feet leased by foreign and domestic retailers from January 2013 through November 2015.
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JLL | Retail Research 3
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
New market entrants pick Upper East Side, SoHo
Where does a retailer go to land its first beachhead in New York? While deep-pocketed global retailers might choose to make a splash
on Fifth Avenue or Times Square, our data suggests that for the vast majority of new or new-to-market retailers, the place to start is
where rents are a little lower. For example, since 2013 a full fifty percent of the new retailers in our tracked trade areas chose to sign a
lease in the Upper East Side. Retailers like Elie Saab, Isaia and Yves Salomon are among the new retailers in the Upper East Side,
where they paid an estimated average $1,460 per-square-foot in ground floor rents.
Of the remainder, nearly all of them opened in SoHo. Only two retailers (Furla and Lao Feng Xiang Diamond) chose Midtown to make
their market entry and they paid for the privilege, with an estimated average ground floor rent of $2,217 per square foot.
Of the three years in this study, 2014 was the big one for new retail entrants, with twelve new-to-market retailers settling in our tracked
markets that year. Only three new entrant leases were signed in 2015 and only 4 in 2013. Over 70 percent were apparel or accessories
retailers and 68 percent sold luxury goods.
Flagships on the decline
At a national level, many retailers are opening fewer locations and trying out smaller store sizes. But New Yorkers could be forgiven for
not knowing about this trend. This is because retail flagship locations seem to so often find a home here. Flagships, which are generally
larger than regular stores in a fleet and usually offer unique merchandise or other features, have seen a decline in leases in recent
years. In 2013 we tracked 22 of them. This year, we counted only four. The most notable of which occurred in October, with Victoria’s
Secret taking 63,780 square feet at 640 Fifth Avenue.
Still waiting for clicks-to-brick activity
Many point to the likes of Athleta, Warby Parker and Bonobos when they say that the future of physical retail is online brands. Since
2013, we have tracked only 7,300 square feet of leasing activity that originated from native online sellers. That’s well less than one
percent. While this small percentage is partly due to the fact that web retailers often eschew big spaces in favor of showrooms, there
just hasn’t been much activity from the sector. Virtual retailers have been cautious in signing leases for space in the real world.
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JLL | Retail Research 4
Manhattan leasing activity down but not out
Expect leasing volume
Discount up-tick in 2016
10%
Middle
40%
Less luxury,
deeper discount
Luxury
Discount
For the purposes of this
study, we split retailers
into four pricing categories: Luxury, High, Middle and Discount. The overall percentage
40%
10%
of leased square feet taken by luxury retailers has been on the decline. In 2013, 40 percent was made up of luxury retailers. In 2015
that numberHigh
had fallen to 10 percent.
Middle Meanwhile, the percent of middle and discount retailers jumped from 50 percent in 2013 to 89
40%
percent this10%
year.
Luxury
40%
Discount
6%
Discount
10%
High
18%
Middle
40%
Retailers by Price Point – Manhattan, NY
High
10%
Discount
6%
Middle
Luxury
40% 44%
High
18%
Luxury
32%
High
10%
Middle
44%
Discount
HIGH
6%
1%
High
18%
Luxury
32%
Luxury
10%
HIGH
1%
Middle
44%
Middle
49%
Luxury
32%
Discount
40%
HIGH
1%
Luxury
10%
Middle
49%
Discount
40%
Percentage of square feet leased through November 2015 in Times Square,
Plaza District, Upper East Side, Midtown, Penn Plaza/Herald Square, SoHo,
Luxury
Upper East Side and Meatpacking District.
10%
Fewer
Middledeals, but rents are still high
Discount
49%
While
Manhattan rental
40% rates are among the highest
in the world, average asking rents in several key retail
submarkets have seen slight declines. In Times Square
for example, average ground floor asking rents have
dropped from $2,502 per square foot in the end of 2014
to $2,214 in Q3 2015. On upper Fifth Avenue, where rents
had previously been growing, average rents have fallen
from $3,382 to $3,185 per square foot in the last quarter,
a drop of 5.8 percent.
Average Ground Floor Asking Rent ($ Per Square Foot – Q3 2015)
Q3 2014; $2,810
Q3 2015; $3,185
Q3 2014; $2,481
Q3 2015; $2,214
Upper Fifth Avenue
Times Square
Q3 2014; $1,535
Q3 2015; $1,583
Q3 2014; $1,102
Q3 2015; $1,161
Madison Avenue
Lower Fifth Avenue
Q3 2014; $481
Q3 2015; $639
Soho
$-
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$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
JLL | Retail Research 5
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
Availability and rental rate trends
Upper Fifth Avenue
49th Street - 60th Street
Lower Fifth Avenue
42nd Street - 49th Street
Average Ground Floor Asking Rent: $3,382 PSF
Average Ground Floor Size: 4,231 SF
Highest Asking Rent: $3,800 PSF, 685 Fifth Ave
Lowest Asking Rent: $1,500 PSF, 636 Fifth Ave
Average Ground Floor Asking Rent: $1,161 PSF
Average Ground Floor Size: 5,042 SF
Highest Asking Rent: $1,500 PSF, 535 Fifth Ave, 576 Fifth Ave
Lowest Asking Rent: $750 PSF, 562 Fifth Avenue
Madison Avenue
60th Street - 72nd Street
Times Square
Bowtie, between 42nd - 48th Street, Broadway & 7th Avenue
Average Ground Floor Asking Rent: $1,583 PSF
Average Ground Floor Size: 3,136 SF
Highest Asking Rent: $2,500 PSF, 860 Madison Ave
Lowest Asking Rent: $800 PSF, 780 Madison Ave
Average Ground Floor Asking Rent: $2,214 PSF
Average Ground Floor Size: 3,777 SF
Highest Asking Rent: $3,000 PSF, 1550 Broadway
Lowest Asking Rent: $1,340 PSF, 716 7th Ave
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JLL | Retail Research 6
Manhattan leasing activity down but not out
Expect leasing volume up-tick in 2016
Availability and rental rate trends (continued)
SoHo
From Broadway - W Broadway & W Houston - Broome Street
Average Ground Floor Asking Rent: $639 PSF
Average Ground Floor Size: 2,725 SF
Highest Asking Rent: $1,584 PSF, 489 Broadway
Lowest Asking Rent: $200 PSF, 83 Wooster St
Prince Street Average Asking Rent: $960
Spring Street Average Asking Rent: $933
Broadway Average Asking Rent: $837
Greene Street Average Asking Rent: $472
Mercer Street Average Asking Rent: $535
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JLL | Retail Research 7
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For more information, please contact:
James D. Cook
Director of Retail Research
[email protected]
Keisha McDonnough
Senior Analyst, Retail Research
[email protected]
David Wong
Research Analyst, New York
[email protected]
About JLL
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