When the coronavirus pandemic first hit, New York City emerged as its epicenter -- an unwanted distinction. And while the pandemic has since wreaked havoc on a national level, New York City continues to feel its pain. Spurred in part by a decline in tourism, Manhattan's luxury shopping district has taken a major hit, and now, one year into the pandemic, the city's famed Fifth Avenue is loaded with vacant storefronts.
Bad news for Manhattan real estate
With an estimated 32 storefronts sitting empty across a 17-block span of one of Manhattan's most high-end shopping districts, Fifth Avenue is a sorry sight these days. Between 42nd and 59th Street, roughly one quarter of stores are now vacant. And while some of those empty stores have new tenants in the works, there are still stretches of available retail space just waiting to be snatched up.
Of course, new tenants aren't exactly rushing to sign expensive lease agreements given where we're at in terms of the pandemic. While some retailers have managed to continue generating a decent amount of revenue over the past year by shifting their focus to online orders and offering easy pickup options, like curbside and BOPIS (buy online, pick up in store), luxury retailers can't pivot as easily. The reason? Shoppers who frequent high-end stores do so not just for the goods but also for the experience. And placing an online order doesn't have the same appeal as wandering through a luxury department store on a lazy Tuesday before meeting friends for afternoon tea.
Absent tourism is also hurting luxury retailers. Each year, countless visitors from out of town flock to shopping hubs like Fifth Avenue, in part to see how the wealthy live and in part to splurge in the course of a vacation. Losing those shoppers has hurt high-end stores, too.
All told, investors in Manhattan's luxury shopping district may be in for some near-term pain given the number of vacancies on their hands. And while new tenants may jump at the chance to snag a home on Fifth Avenue, those same tenants will no doubt be in a strong position to negotiate favorable lease terms.
This past fall, in fact, average asking rents for the most expensive part of Fifth Avenue -- the area between 49th and 59th Street -- were about $2,600 per square foot. And while that's clearly a whopping sum to pay, it also represents about a 25% decline from 2017, when average rents for that stretch of Fifth Avenue peaked.
Keep in mind that in time, things are likely to take a turn for the better. As things improve on the pandemic front and in-person shopping becomes a safer prospect, Manhattan's elite should once again start frequenting high-end retailers, and tourists should also follow suit. But it could be at least a year, if not longer, until foot traffic reaches pre-pandemic levels. Much will depend on how the coronavirus vaccine rollout goes and whether other mitigation measures are successful in fighting the coronavirus outbreak. As such, real estate investors will really need to negotiate near-term leases accordingly in an effort to ride things out.