New York City saw 54.3 million visitors in 2013, an all-time tourism high for the five boroughs, and a 54% increase since Mayor Bloomberg took office twelve years ago.
City officials estimate the overall economic impact of tourism in 2013 to be $58.7 billion. Direct visitor spending is projected to be $39.4 billion, up from $36.9 billion in 2012. A significant portion of the visitor spending is attributed towards purchases of retail products.
The combination of the visitors, coupled with the fact that New York City is under-retailed, has resulted in the appetite of real estate investors to own retail locations throughout the five boroughs, especially in Manhattan.
Eastern Consolidated’s December 2013 Retail Pulse Report showed that average asking rents are increasing in nearly every NYC neighborhood, including Fifth Avenue from East 49th Street to East 59th Street where they are city wide high of $3,000 per square foot. Average asking rents on Broadway and Seventh Avenue, from 42nd Street to 47tth Streets, have risen above $2,000 per square foot.
Pricing for retail condominiums and sites in the SoHo neighborhood are reaching an all-time high. Average asking rents in SoHo are now more than $800 per square foot, and retail locations especially on SoHo and Fifth and Madison Avenues, are selling for record prices.
In 2010, the retail condominium at 40 Mercer Street, also known as 465 Broadway, sold for $41.9 million. In July 2012, the same unit was sold for $57.5 million. Last summer, Imperium Capital partnered with Centurion Realty to purchase the retail condominium for $80 million. As reported in the Real Deal, the retail in the recently completed mixed-use luxury condominium tower stretches 75 feet along Broadway, 200 feet on Grand Street and 45 feet on Mercer Street and has 9,400 square feet of ground floor space. Current tenants include Bose, Wells Fargo and Dermalogica.
On December 20, 2012, a partnership of Jeff Sutton, Joe Sitt, Bobby Cayre, and the Adjimi family, closed on the purchase of the building at 529 Broadway. The property has approximately 43,800 square feet of development rights, paying approximately $147.9 million, a per-buildable square foot a record for SoHo Retail. The joint venture acquired the 1936 warehouse building with plans to tear down the property and replace it with a new building, which will be six stories and contain 34,000 square feet. According to an article in the December 4th edition of the New York Post, Nike is targeting the property for a possible site.
The newspaper also reported in September that Jeff Sutton was in contract to buy a three building package at 530 Broadway form Joe Sitt’s Thor Equites for $327 million. Sitt bought the 530-536 Broadway property at the corner of Spring Street for $190 million in 2007, and later bought back the debt at a discount, saving roughly $40 million, sources said.
In December, a joint venture of investors which include Bobby Cayre agreed to pay $42 million for a site in SoHo, which would be the highest price ever paid for SoHo retail. The 2,750 square foot retail space at 114 Prince is scheduled to be sold for a record price of $15,336 per square foot.
According to the New York Post, the previous record price for retail was $15,100 per foot, for the 24,800 square foot retail condominium at the base of the St. Regis Hotel on Fifth Avenue. The purchaser was Swiss company Richemont North America paying $380 million last year.
This summer, Madison Capital purchased a parcel at 19 East Houston Street, between Broadway and Crosby Streets, for $25.85 million. The investors plan to build at 26,700 square foot, six story office and retail building on the triangular lot in Soho. The Real Deal reports that the company architectural plans show a 4,262 square foot ground floor retail space with an option for silver of retail space touching on Broadway, The building will have a total of 14,822 square feet of above ground retail on three levels, and 11,878 square feet of office space on floors four through six. The developer purchased the site from the MTA, which controls the city-owned parcel through a master lease.
In the fall, Ashkenazy Acquisition purchased a prime SoHo retail condominium on the ground floor of 145 Greene Street for $9.75 million, or $4,947 per square foot. The property, which has approximately 1971 square feet, currently houses the café chain Aroma Espresso.
CBRE Group reported that Hong Kong is by far the world’s most expensive city for global retailers, but prime rents in New York, London, Tokyo an Zurich are on the rise. Hong Kong at $4,328 per square foot tops the ranking with New York at $3,050 in second position.
The average asking rent for Fifth Avenue retail corridor from 49th Street to 59th Street was just over $3,000 per square foot, the highest in the city, according to CBRE Groups’, Manhattan Retail Market View Report for the second quarter of 2013. This was the first time a Manhattan retail corridor has posted an average asking rent north of $3,000.
Vornado Realty Trust, one of the largest owners of retail sites in Manhattan and on Fifth Avenue, announced it agreed to pay $278 million or $5,227 per square foot for a majority stake in 655 Fifth Avenue, a retail and office property with 50 feet of frontage on Fifth Avenue. The REIT is buying a 92.5 percent stake in the property from a joint venture including Madison Capital. The 57,500 square foot is located at the northeast corner of Fifth Avenue and 42nd Street and houses the flagship store and U.S. headquarters of luxury retailer Salvatore Ferragamo.
In November, SL Green Realty Corp and partner Jeff Sutton announced they formed a joint venture that acquired a 49-year leasehold interest covering the entire retail portion of the office building at 650 Fifth Avenue. The investment provided the partnership with control of the building’s basement, grade level, second and third floor retail spaces that are currently occupied by Juicy Couture, Godiva Chocolate and Devon and Blakely. The partnership later announced that they entered into an agreement to buy out the lese of retailer Juicy Couture, enabling the partnership’s ability to reposition the building’s premier retail corner location. Juicy received $50 million to vacate the retail space which had about seven years left on its lease.
SL Green and Sutton already control 717 Fifth Avenue nearby, which features the Giorgio Armani and Dolce & Gabbana flagships in addition to 720 Fifth Avenue, home to Abercrombie & Fitch and 724 Fifth Avenue, Prada’s flagship store.
Only one major retail sale took place this year on Madison Avenue. At the beginning of the year, Thor Equities purchased 33,389 square feet of retail space at 680 Madison Avenue, the site of the former Carlton House which is currently being converted into luxury condominium (the apartments are under a 99 year land lease). They paid $277 million, of $8,296 per square foot to the developer a joint venture of Extell Development Co. and Angelo, Gordon & Co.
In the summer, Sitt Asset Management and Ashkenazy Acquisition paid about $47 million for 711 Madison Avenue, at the corner of 63rd Street.
Implications for the Future
Fueled by intense investor demand and rising retail rents across the five boroughs, the New York City retail property market has continued its healthy volume of activity with $445 million in sales in the third quarter of 2013, according to the Eastern Consolidated’s December 2013 Retail Pulse Report. Not only did the third quarter volume more than triple from the first quarter, but if activity remains healthy, year-end sales potential in New York City has the potential to reach $1 billion, with even higher total likely in 2014.