Aug 02, 2020
Retail rents plummet across New York City, as America's glitzy shopping districts turn into ghost towns
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Fifth Avenue is empty of traffic as people remain at home to stop the spread of the Coronavirus pandemic on March 31, 2020 in New York City.Noam Galai | Getty Images
High-end handbag maker Valentino is suing to get out of its lease on Fifth Avenue in Manhattan, a vacated Barneys New York still sits empty on Madison Avenue just a block over, while bankrupted luxury department store chain Neiman Marcus is shutting its doors for good on Worth Avenue in Palm Beach.
As the coronavirus pandemic brings tourism to a temporary standstill, leaves consumers holed up at home and puts millions out of work, America's glitziest and most expensive retail districts are losing tenants, and rents are in a free fall. The pressures from the Covid-19 crisis will likely have a lasting impact on shopping streets such as Michigan Avenue — better-known as the "Magnificent Mile" — in Chicago, the Las Vegas Strip, and Rodeo Drive in Los Angeles, to name a few.
It is already beginning to play out with the changes taking place throughout the New York City retail scene, serving as a leading indicator of what's to come in other major metros, real estate analysts predict.
"In the U.S., certainly you will see that what was once perceived as a luxury block in any major city is no longer exclusively luxury," said Naveen Jaggi, the president of commercial real estate services firm JLL's Retail Advisory team. "We will see an extension of what happened in 2008 and 2009, which left American consumers shifting toward value more aggressively."
"More and more retail real estate space is going to be taken up by non-luxury," he said. "Take Fifth Avenue. You see a Vans, a Five Below and a Timberland. Those kinds of brands are the ones taking space. That's all you need to know about the direction of Fifth Avenue."
Some of these changes were already shaping up before the Covid-19 crisis. The discount retailer Five Below, for example, opened its store on Fifth Avenue late in 2018, marking a pivotal moment for a retail district that is home to Saks Fifth Avenue's sprawling department store and a multilevel Louis Vuitton right down the block. But now, this changing dynamic is expected to accelerate.
During the second quarter ended June 30, average asking rents along 16 major retail corridors in Manhattan declined for the eleventh consecutive quarter, falling to $688 per square foot, according to a report from the commercial real estate services firm CBRE. The drop marked the first time since 2011 that prices dropped below $700, the firm said, representing an 11.3% decline from a year ago.
Within that, rents on Prince Street in the SoHo neighborhood saw the biggest declines, according to CBRE, tumbling 37.5% year-over-year to $437 per square foot from $699 per square foot — and falling below $500 for the first time since 2014.
The Upper Madison Avenue corridor from 57th Street to 72nd Street, which holds a number of luxury retailers including Balenciaga, Celine and Hermes, saw rents drop 15.3% from a year ago to $882 per square foot.
The most expensive retail rents in the city are found in the Plaza District along Fifth Avenue, which runs from 49th Street to 59th Street and boasts retail storefronts from Tiffany to Gucci to Cartier. Those rents held steady at $3,000 per square foot during the second quarter, CBRE said, falling 4.8% from a year ago, but remaining unchanged from the prior quarter.
All told, the number of ground-floor leases available in Manhattan's 16 retail corridors tracked by CBRE hit a record of 235, surpassing a previous high of 230 set back in 2013, the real estate group said.A customer wearing a protective mask carries a Moncler SpA shopping bag past an Yves Saint Laurent store on Rodeo Drive in Beverly Hills, California, U.S., on Tuesday, May 19, 2020.Patrick T. Fallon | Bloomberg | Getty Images
"The ongoing repricing of trophy properties was a significant factor in the declining average of asking rents," said Nicole LaRusso, a research director for CBRE in the Tri-State region.
"Average asking rents will likely continue to decline throughout the rest of the year," she added.
One driving factor is fewer people spending their afternoons out shopping — especially tourists. Global luxury sales are forecast to drop roughly 29% in 2020, falling anywhere between $85 billion and $120 billion from a year ago, amid the decline in tourism, according to a report from the Boston Consulting Group.
But the pressures on New York City retail rents, which are playing out in other parts of the country as well, stem from multiple sources — beyond both overseas and interstate tourism dropping off.
A number of retailers have outright stopped paying rent to their landlords during the pandemic, which in some instances is resulting in litigation. Mall owner Simon Property Group, for example, is suing Gap Inc. for not paying its bills. Many retailers are also using the pandemic as an opportunity to renegotiate their leases and ask for better deals, knowing many property owners are desperate just to have space filled.
The supply of retail space in the U.S., which equates to more square feet per capita than in any other country, is increasingly outweighing consumers' demand to shop in those stores.
JLL's Jaggi said he has spoke to a number of retailers recently that used to have storefronts along Fifth Avenue and Michigan Avenue, that are no longer there.
"They've all said the old philosophy of using Fifth Avenue as a marketing ploy ... was something to consider in the '90s and into the 2000s, but that is no longer the case," he said. "Four-wall profitability will driver every retailer's decision moving forward. It was already heading that way pre-Covid. The sales were not the level they were expecting. All Covid did was put a big spotlight on this."Workers board a Coach store on Michigan Avenue in Chicago, Illinois, U.S., on Friday, April 3, 2020.Christopher Dilts | Bloomberg | Getty Images
Still, not everyone is counting these shopping districts out for the long term, even with tenants fleeing and rents falling.
"The mix will change. The profile will change," said Jeffrey Roseman, a founding partner of Newmark Knight Frank's Retail division and vice chairman at the company's New York headquarters. "But the tourists will come back. When they go to [Los Angeles] they are going to go to Rodeo Drive, because this is what everyone knows to do."
It might just be that some of these markets take longer to recover than retail in the suburbs, as many consumers are looking to shop closer to home during the pandemic versus downtown. Researchers at Harvard that have been tracking consumer spending also have found that consumption by high-income households remains far below pre-Covid levels, likely eating into luxury retailers' sales.
Jeff Gennette, the chief executive of Macy's and the high-end department store chain Bloomingdale's, hinted at the trend toward shopping in the suburbs, earlier this summer.
He told analysts during a July 1 earnings call that tourism to Macy's stores had essentially "disappeared," with its smaller stores in rural communities recovering faster than its stores in urban shopping meccas.
"I think there is a short-term and a long-term look at this," NKF's Roseman said. "Short-term, we are in survival mode right now. But when things do sort of turn back around, it will still be the same. There is only one Fifth Avenue in the world."VIDEO2:4802:48Big mall owners are looking to do deals to salvage bankrupt retailersThe ExchangeRelated Tags
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At the intersection of pandemic shopping and cottagecore, the strawberry dress
The strawberry dress has captured the hearts and minds and wallets of the internet. The pink tulle gown is more formally known as the Strawberry Midi Dress, by designer Lirika Matoshi. The $490 price tag makes it inaccessible for a lot of people—even more so during a pandemic—but it’s also available in size XL to XXXL, so it accommodates more body types (though not all). But why is this particular dress everywhere right now?Hide
It’s been available since July 2019, when the designer posted it to Instagram. However, last summer was dominated by another coveted article of clothing: the Zara polka dot dress. Model Tess Holliday wore the strawberry dress to the Grammys in January (and reposted it on TikTok this week), and throughout the spring it showed up in influencer Instagrams, but a revival of the cottagecore aesthetic on TikTok this summer no doubt elevated the dress.Hide Twitter
While cottagecore idealizes a more simple, from-the-land way of living—at least outwardly—there’s also a distinct sartorial aesthetic. The dress has been embraced and memed by lesbian (and “cottagecore lesbian”) spaces. As Vogue notes, it’s also been embraced by K-pop, fan art, and anime communities; there’s even an Animal Crossing dress crossover.Hide Twitter Twitter Hide
On TikTok, the hashtag #strawberrydress has more than 5 million views, and the collective thirst has become a meme. Unboxing videos are popular, and others have tried to make their own dress, which is part of a bigger DIY fashion trend on TikTok. But not everyone has experienced the serotonin hit. User deaddaygal showed off the dress but pointed out some of its inconsistencies, and lamented buying a knockoff, of which there are many.@deaddaygal
My strawberry dress fail… #helpmeplease #strawberrydress #cottagecore♬ original sound – deaddaygal Hide
The number of knockoffs or “dupes” for sale, including one via TikTok account Cottagecore Outlet, sparked debate about stealing from independent artists and designers, and its effect on workers. YouTuber Pixielocks addressed this issue in a recent video, explaining that the steep price tag also helps pay Lirika Matoshi’s all-women staff a living wage and supports an ethical business model, which knockoff or “fast fashion” sites often do not.Hide
Still, the designer is seeing a massive uptick: Matoshi and general manager Ledri Mahmuti told NBC that sales have spiked 1,073 percent since this time last month.Hide
Elsewhere, in lieu of buying the dress people photoshopped it onto celebrities like Zendaya and Harry Styles, fictional characters like Kylo Ren and Gollum, and Led Zeppelin.Twitter Hide Twitter Hide
Would this dress still be as popular if we weren’t living through a horrific pandemic with no end in sight? Possibly. But, unlike the Zara dress from last summer, its ascendance is tied more to aspirational ideas of fantasy and comfort—and a rise in impulse buying and targeted Instagram ads.
As Vice reports, people have also been mass-purchasing fish-shaped slippers from retailer Coddies this summer; before that it was roller skates and bike shorts. Colleen P. Kirk, an associate professor of marketing at New York Institute of Technology, told Vice this disruption of schedules and daily activities has led to more of a need for control in our lives: “For example, if our usual outlets for socializing and having fun are unavailable to us, we might be inclined to purchase things that are more fun and frivolous than we might otherwise purchase.” It’s having an impact on relationships, too: As MEL reported, women’s desire for this dress is coming up against men’s understandable sticker shock over the price tag.
But summer will give way to fall and this trend will likely fade. Lirika Matoshi makes matching masks, too, perhaps a more enduring purchase in these uncertain times.Hide Today’s top stories
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