Street s Sunny Side Costs Retailers More in Rent

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1 Wednesday, September 25, 2013 Street s Sunny Side Costs Retailers More in Rent BY STEPHANIE CLIFFORD In New York, everything has a price even sunshine. As Manhattan rents rise over all, retailers are jockeying for prime locations, and are paying a premium for areas like the east side of Fifth Avenue the sunnier side of the street. New York s most expensive retail space, prime Fifth Avenue, is the second-most expensive in the world, after Lan Kwai Fong in Hong Kong, beating out the Champs- Élysées in Paris and New Bond Street in London, according to the retail group at Douglas Elliman Real Estate, which supplied most of the figures for this article. Elliman recently arranged deals for Orogold Cosmetics on 57th and Park, and Buccellati jewelry, Armani Junior and Perrin Paris 1893, a leather accessory brand, on Madison. It sounds cocky, but it s New York and then it s the rest of the world, and that s why everybody wants to be here, said Faith Hope Consolo, a broker with Elliman. According to the latest figures available from the Real Estate Board of New York, the average retail price sought per square foot in Manhattan in spring 2013 was $116, up 5.4 percent from fall Walk up and down Fifth Avenue, or shop on 57th Street, and the reasons for the variations in the price of retail space are mostly secrets known to retailers and developers. Sun is a major factor. Shoppers generally gravitate to the sunny side of the street, and the natural light helps showcase retailers goods. Transportation is another. Pedestrian traffic will be higher on streets with subway exits. And the lineup of shops around a location may be most significant. Your neighbors are very important, said Larry Meyer, chief operating officer for United States business at Uniqlo, a Japanese clothing retailer. The chain opened a 90,000-square-foot store on Fifth Avenue and 53rd Street two years ago, and has Zara and Hollister clothing stores next door. Counterintuitively, retailers like to set up shop next to direct competitors, so customers can wander from one like-minded store into the next.

2 There are many nuances where literally half a block can make a difference of double the rent, said Donald J. Trump, the real-estate developer, whose Trump Tower sits at Fifth Avenue and 56th Street, and who leases retail space throughout the city. And now that the recession is over, retail rents over all have begun to rise, signifying changes in some notable blocks and streets in Manhattan. Here are some patterns in Manhattan s liveliest retail districts, and in a couple of clunkers. (Of one particular avenue, Ms. Consolo said, sighing, We don t even talk about it. Fifth Avenue The east side of Fifth, between 49th and 59th Streets, commands the most expensive retail rents in the city, with asking prices of $3,500 a square foot, according to estimates by Douglas Elliman Real Estate s retail group. The sunny stretch starts with the tourist destinations Saks Fifth Avenue and St. Patrick s Cathedral, then continues north with store after store, Cartier, De Beers, Tiffany, F.A.O. Schwarz and Apple. The west side of Fifth Avenue, while still desirable, asks about $3,000 a square foot, as the institutions, the clubs, the churches interrupt a much-preferred store-after-store march along the avenue, Mr. Trump said. The watch retailer Wempe opened its first multibrand boutique in 1980 on the east side of Fifth. A decade later, when that lease expired, it searched for another East Side location. The west side at the time was still sort of underdeveloped, almost like a no man s land, dotted with electronics stores, said Ruediger Albers, president of American Wempe Corporation. It had nothing that would make you want to cross the street. But when Wempe could not find East Side space, it opened a store on Fifth and 55th, on the west side of the avenue. In recent years, the west side has become a magnet for mass-market stores, like Uniqlo, Abercrombie & Fitch and H&M, all of which opened flashy stores. We get a lot of tourists into Fifth Avenue, said Mr. Meyer of Uniqlo. As basically an embryonic company here in the U.S., we thought it was important to establish that flagship so there was some benefit to suburban stores as well. Last year, Wempe opened a second boutique, which sells Rolex watches, on the east side of the street. Mr. Albers says he sees no big difference in traffic now that he has stores on both sides. Having those big retailers as neighbors can actually be a plus on the west side, he said. There s a lot of high end on this side, but also something for the kids that might attract families to walk on the west side of the street, he said. Retail rents drop substantially as Fifth goes south, to about $1,000 a square foot from 49th to 42nd streets, where mall staples like Ann Taylor and Sephora have stores. Rents are $425 a square foot from 42nd to 34th Streets, where Bryant Park breaks up the retail landscape, but also where Lord & Taylor and the Empire State Building draw tourists farther south. Madison Avenue

3 Madison has a haute-couture reputation, but it commands rents much lower than Fifth. From 57th to 72nd Streets, the west side of the street is priced about $1,300 a square foot, and the east side is about $1,400 a square foot. People know to go to Madison for luxury, but it s not a high-traffic destination, said Susan Kurland, an executive vice president with CBRE. In an example of how one store can change a pattern, the west side of Madison always had the lackluster tenants until Barneys New York opened on the west side of 61st and Madison in 1993, Ms. Consolo said. Now, retailers are equally interested in both sides, although the east side still carries a slight premium again, because of the sun. The designers all run to Madison because the scale, after you get to 61st, is much easier to digest, Ms. Consolo said. Chanel, Jimmy Choo, Hermès and Prada line up along Madison, with two Ralph Lauren mansions facing each other at 72nd Street, ending the southern swath of chic boutiques. Above 72nd Street, rents fall to about $700 a square foot, and it becomes middle to high-end and aspirational retailers there, Ms. Kurland said, like Missoni and Lilly Pulitzer. Farther north above 79th Street, rents drop to about $500, and brands with multiple locations like Lululemon and Theory cater largely to neighborhood shoppers. We had a store for years on Madison and what we realized is, Madison is more for the locals and it s not so much for the tourists, said Thomas Linemayr, chief executive of Lindt USA, which now has two stores on Fifth instead. 34th Street It is see and be seen for mass-market chains here, thanks to the tourist traffic that Macy s, Penn Station, Madison Square Garden and the Empire State Building attract. H&M just announced it was opening a 63,000-square-foot store, its biggest, on the southwest corner of 34th and Broadway, cater-corner from its current store. The asking price for the new H&M space was $1,200 a square foot. In spring 2012, asking rents in the area were just $558 a square foot, according to the Real Estate Board of New York. Thirty-fourth does get tourists, but it s considered a real shopping street; people go there to really shop, not for any other reason, and they do real numbers, said Ms. Kurland, who represented the landlord in the H&M deal. Once Madison Square Garden is redeveloped, she predicted, the surrounding area will become more vibrant. 57th Street Cross the street, and double the rent. The north side of 57th, between Fifth and Park, goes for $2,000 a square foot. The south side in that space gets half that, mainly because there is just not much in the way of grand stores, brokers say. When you hit Madison Avenue, you have the I.B.M. building, Ms. Kurland said. There s no retail, so that s a dead spot. And while Niketown, perhaps the most prominent tenant on the south side, may be flashy and popular, it does not exactly ooze prestige.

4 The north side, in contrast, is a murderers row of luxe, including Louis Vuitton, Chanel, Dior, Saint Laurent, and Bergdorf s. Meanwhile, the long-overlooked western section of 57th is undergoing a big makeover, real estate agents say. Nordstrom will open a 285,000-square-foot space between Broadway and Seventh in 2018, and Viceroy Hotels and Resorts and Quin are opening hotels there this fall. First, Second and Third Avenues, uptown A revival is occurring on Third Avenue. When the market crashed, you could throw a bowling ball down Third Avenue in the 60s, low 70s, which had gotten somewhat hot, Ms. Kurland said. Prices have been inching up to about $250 a square foot. That is thanks in part to Bloomingdale s the closer to Bloomie s, the higher the rents, Mr. Trump said and in large part to the Second Avenue subway construction one street away. Oh, it s a mess, it s such a mess there, Ms. Consolo said. It s disrupted rental life, retail life, so it s not only hurt accessibility, but it s completely destroyed visibility, and you ve had a lot of stores closing. I could say that you could almost give away the locations on Second. No one s interested. Rents, she said, have dropped to about $75 a square foot there. The retail it s a nonstreet street now, she said. We don t even talk about it. First Avenue, or the forgotten sister, as Ms. Consolo called it, is reaping the benefits as retail shifts, she said. Bleecker Street Between Bank and Christopher Streets, Bleecker s blocks of boutiques still unsettle those who cling to the West Village s reputation as Bob Dylan territory. Starting a decade ago, I made deals on Bleecker on the best blocks, Ralph and everybody, Ms. Consolo said, referring to Ralph Lauren, for $75 a foot, and now I m making deals for like $600 a foot. Retailers like the European feel and small scale of Bleecker, she said, and the fact that you re a big fish, you stick out. The Meatpacking District The once-popular neighborhood is slipping a bit. With few zoning restrictions, it became a night-life destination. And while designers like Alexander McQueen and Stella McCartney tried opening stores there, they have moved out and are being replaced by more mass-appeal brands. You have, like, Uggs and Patagonia, tenants like that, Ms. Kurland said. They re good tenants, but tenants that you would find in every urban setting and in malls. There s a lot of space on the market down there now, where there hadn t been, she said, and it hasn t done well for the luxury brands. Still, rents were about $366 a square foot in the second quarter of 2013, up about 3.4 percent from the first quarter, according to CBRE.

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