The coronavirus pandemic has hurt retailers across the country, but in Manhattan, the damage has been pretty extreme. The combination of residents fleeing the island in search of larger spaces to ride out the pandemic and a glaring lack of tourism has caused a world of upheaval for the city's most popular shopping districts. And now, rents are being offered at a substantial discount, which is great for retailers but less great for the landlords that rent to them.
Retail rents take a dive
While leasing activity has begun to pick up in Manhattan, retail rents fell substantially during the first quarter of 2021, according to Cushman & Wakefield. The SoHo area was hit the hardest in this regard, with average asking rents plummeting 20% from a year prior to $279 per square foot. Furthermore, about 30% of the neighborhood's retail space is currently unoccupied, and given that lack of demand, investors may be worried that rent prices in SoHo will stay low for quite some time.
Meanwhile, lower Fifth Avenue from 42nd to 49th street saw retail rents drop more than 15% during 2021's first quarter. And Madison Avenue, another high-end shopping corridor, faced a similar blow, with rents there declining over 15% and availability hitting the 40% mark.
The one exception to this pattern was Upper Fifth Avenue between 49th and 60th street. Along that corridor, the availability rate declined from a year prior and sat at 20% during the previous quarter.
But investors shouldn't lose hope
Over the past year, real estate investment trusts REITs with investments in Manhattan's most prominent shopping districts have been hurt by the impact of the pandemic. Not only did a lack of tourism cause retail stores to largely sit empty, but the remote work trend made it less likely for people to pass those stores on the way to and from their offices, thereby taking away that revenue stream, too.
But things could soon change for the better. Manhattan is already beginning to see more signs of life. Public transportation usage is up, Broadway has a scheduled return date, and tourist areas like Times Square are now seeing an increase in foot traffic. Plus, the fact that the CDC announced that fully vaccinated people can ditch their masks indoors is apt to lure more people back into stores -- especially higher-end shops, where browsing the aisles can be a unique experience in and of itself.
In fact, New York City is planning on a full, restriction-free reopening on July 1. That move alone is apt to draw in hordes of tourists, which could also be a boon to retailers.
The takeaway? Demand for retail space in Manhattan's most well-known shopping districts could pick up well before the year is out. And once that happens, property owners will be in a better position to negotiate higher rental rates. As such, while retail rents may have fallen in the Big Apple over the past quarter, that trend could easily reverse in the near term, and that's something investors should get very excited about.