Retail leasing trends and outlook for 2005

Real Estate Weekly, Dec 15, 2004 by Bradley A. Kaufman, Seyfarth Shaw

In 2004, several new retailers established leases in the New York City marketplace, while many recent entrants expanded their presence in the marketplace.

While this is especially true of the more high profile European retailers, such as H&M, Zara, Mexx and Espirit, even domestic retailers, such as Ann Taylor, Ann Taylor Loft, Kenneth Cole, the various Limited brands and Zales have opened multiple locations in the Manhattan retail scene.

Specialty retailers, particularly those catering to children, such as American Girl Place and Build-a-Bear Workshops have entered the retail scene on Fifth Avenue.

Japanese retailers, such as the new home furnishing retailer Family Inada, have also taken up residence on Fifth Avenue. Foreign retailers are often able to spend more money in opening "flagships" on Fifth Avenue and elsewhere by funding these endeavors out of advertising, as opposed to real estate budgets. While the local industry trades have reported that many retailers have abandoned the traditional retail areas in Manhattan, as landlords in those areas have preferred the credit and stability of banking tenants (e.g., Wachovia, Bank of America, Commerce, Washington Mutual and HSBC) other areas, such as SoHo, Chelsea and even Fifth and Madison Avenues, have continued to enjoy an influx of "fresh faces".

However, Soho, Tribeca and even Fifth and Madison Avenues continue to be destinations not only for consumers, but for new and up and coming retailers.

The question of who will become the hot, new retailer in New York City (rumor has it that Spain's Mango is in the marketplace), it should be noted that a number of retailers that first came to New York over the past five years continue to expand in New York City.

H&M is an example of one of those retailers who just recently opened another flagship location in the new Bloomberg office tower (at the previous Alexander's site), bringing the total of H&M stores to nine in New York City (and over 75 nationally).

I believe that the aforementioned trends will continue through 2005, with landlords continuing to prefer the significant credit-worthy banking tenants over the more speculative clothing or other retailers. Many new faces will continue to join the marketplace, including several European retailers who will continue to grow and enjoy success.

We can also expect to see the continued growth of much larger retailers, including Staples, Home Depot, Target, Ikea in New York City--the new Bloomberg office tower being on the cutting edge with its new Home Depot mega store. It will also be interesting to see how the Times Square area develops, as many retailers have come and gone on a regular basis over the past several years leaving vacancies, both actively in the market as well as "shadow" opportunities at present.

The Christmas season may, in fact, be quite telling in this regard.