Eating places are signing a lot of the new retail leases as rents for shops in Manhattan fall
A person walks past a restaurant that has ceased operations in Gramercy as the city continues reopening efforts following restrictions imposed in New York City on October 21, 2020 to slow the spread of the coronavirus.
Noam Galai | Getty Images
An abundance of empty space already stocked with kitchen appliances and the ability to take advantage of historically low rents is driving restaurateurs to sign new leases across New York City.
In the second quarter ended June 30, tenants in the food and beverage sector were most active in signing retail deals across Manhattan, according to commercial real estate services company CBRE. Some, like Flex Mussels, are making a comeback after last year’s restrictions on indoor eating decimated the industry. The seafood restaurant is moving a block from its pre-pandemic house on the Upper East Side to take over a roughly 4,500-square-foot, two-story space that was vacated by a Turkish restaurant in 2020.
The industry tracker Datassential found that more than a tenth of US restaurants – or about 80,000 locations of about 779,000 restaurants – have been permanently closed since March 2020.
Other companies see the carnage as an opportunity to enter the market for the first time. Mezeh Mediterranean Grill, an Annapolis, Maryland-based chain that serves Greek-inspired dishes, has just signed its first Manhattan lease.
La Casa Del Mofongo, a Latin American restaurant and nightclub, signed a 10-year contract for a 15,000-square-foot space near Herald Square, CBRE said. It was the largest food and beverage store in the quarter. The Sweetgreen salad chain and the Shake Shack burger shop also announced new outposts. The former is gearing up to go public to fuel its expansion plans, while the latter plans to open up to 40 new U.S. restaurants this year.
Across Manhattan, restaurant chains signed 23 stores totaling 83,333 square feet in the second quarter, CBRE found. Clothing companies were the second most active group with 10 leases totaling 49,236 square feet. Health care providers and jewelers followed with two deals each.
“The density within our neighborhoods is still very, very high,” said David LaPierre, vice chairman of CBRE’s global retail services team. “There’s a lot going on in the restaurants right now. Super busy. So a lot of businesses are a bit opportunistic because… people are thinking more about the long-term comeback.
A flurry of restaurant options is encouraging as Manhattan’s retail real estate market continues to falter. The Covid health crisis has turned one of the busiest cities in the world into a ghost town for retail.
Rental rates have now slowed for eight consecutive quarters, according to CBRE’s tracking of 16 major Manhattan retail corridors. The number of direct availabilities on the ground floor increased to 290 in the second quarter, from 275 locations in the previous period. This marks a record high level of retail space availability, CBRE said.
Average asking rent in retail decreased 10.7% year-over-year to $ 615 per square foot, the 15th consecutive quarterly decline. CBRE found that current rental rates are at their lowest level in nearly a decade.
Landlords, in turn, use a variety of tactics to sweeten the pot to fill bare shop windows. Concessions such as generous tenant improvement allowances, free rental periods and percentage leases are “major talking points” in the Manhattan retail market today, according to brokers and analysts at CBRE.
A woman walks past a closed retail store in the Flatiron neighborhood of New York City, United States, on May 28, 2021.
Shannon Stapleton | Reuters
Rents along Spring Street in SoHo fell 22.9% to $ 487 per square foot in the second quarter, the largest year-over-year decrease across the 16 corridors. In Times Square – hit hard by the lack of tourists – rents fell 22.5% to $ 1,277, a lower CBRE than it has been since 2011.
Around Grand Central, a corridor frequented by office commuters prior to the pandemic, rents fell 10.4% to $ 675 per square foot.
The momentum should improve as people return to offices and international tourism picks up again, said Jason Pruger, executive managing director of real estate firm Newmark. Some of the recent deals he’s been following have come from companies with a pre-existing presence in the city – including restaurants – who see the space available as an opportunity to easily expand without doing a lot of construction.
“Manhattan is made up of three things: the people who live here, the tourists who come here, and the office populations who come from the suburbs,” said Pruger, who works in Newmark’s midtown office. “For Manhattan to be Manhattan, all three have to click.”
The SoHo neighborhood saw the most new deals in the quarter as low rents and returning buyers attracted a large number of retail tenants.
CBRE tracked 13 deals in SoHo in the second quarter, occupying 47,332 square feet of commercial space. One of them came from the British jewelry brand Vashi, which signed its first lease in the United States.
Two deals in the Plaza District along Fifth Avenue, which runs from 49th Street to 59th Street, totaled a whopping 31,622 square feet. The Spanish fashion brand Mango is taking over Ralph Lauren’s former 28,000 square meter flagship location along the legendary strip of high-end brands.
“There is still ongoing downward pressure on rents,” LaPierre said. “It varies from market to market.”
“When do we reach this balance?” he added. “Higher office occupancy. More daily population. More tourism. … When we see that, this line will probably flatten a little and rise again at some point.”
– Amelia Lucas from CNBC contributed to this report.