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BROKERS BULLISH ON MANHATTAN

But some retailers hold back on expansion plans for now

By Dave Bodamer

Brokers say the midtown retail real estate market bounced back soon after the disaster.

While observers predict store sales will fall short of those of 1999 and 2000, retail brokers in New York City remain optimistic about the city’s outlook, and busy.

Even though Manhattan’s retail market has taken a hit following the Sept. 11 attacks, the borough nevertheless remains one of the strongest and most attractive markets in the world, they note.

“Two weeks following the tragedy the phone wasn’t ringing,” said Richard B. Hodos, president of HGCD Retail Services, New York City, a firm that represents retail tenants. But business began picking up after Sept. 30, he said.

Yet while prospective tenants and owners in New York City are still talking about deals, a decline in retail is giving them pause.

“Anybody would be foolish to say that business has not slowed down,” said Jim Wassel, national director of retail services for New York City-based Cushman & Wakefield. “In time, that has to have an effect on rental rates.”

Nevertheless, Wassel added that so far, he has not seen anyone “walking away from deals.”

Not surprisingly, the greatest impact on the retail market in the city was downtown, nearer to the site of the atrocity. Westfield Shoppingtown World Trade Center, the mall located beneath the Twin Towers, contained more than 500,000 square feet of retail space that was destroyed in the attack. Some street-level retail in the financial district was also destroyed or damaged, while other stores in the area saw sales suffer in the aftermath.

In September total sales volume at the Macy’s and Bloomingdale’s flagships was at 40 percent less than expected, with same-store sales decreases of more than 10 percent at each. September sales at Saks’ flagship Saks Fifth Avenue store in New York City were about 25 percent lower than in the same period last year.

September sales dropped 14.1 percent in New York City according to TeleCheck Services, the country’s largest check-processing service. The TeleCheck index is based on a year-over-year, same-store comparison of the dollar volume of checks written by consumers at more than 27,000 of TeleCheck’s 272,000 subscribing locations.

Two New York retail fixtures — Century 21 Department Stores and J&R Music World — were badly damaged by the attacks. One of Century 21’s three stores is located close to the site of the World Trade Center. J&R Music World’s main location just north of the site was shut for more than a month before reopening in late October with a ceremony attended by New York City Mayor Rudy Giuliani.

Since the attacks, what is accessible and what is not has changed almost daily, so people do not know at any given moment where they can and cannot get to downtown.

“People are confused,” said Faith Consolo, senior managing director at Garrick Aug Associates Store Leasing, New York City. “So many streets and transportation arteries have been closed between local trains, buses and cars. And every day that is changing; that’s causing tremendous confusion.”

Brokers did not consider the area around the World Trade Center to be destination retail. Nevertheless, the mall was home to the top five or 10 stores in many retailers’ chains. Thousands of commuters using the Port Authority train station there passed through every day; thousands more workers in and around the World Trade Center visited during lunch hours and after work.

Several brokers said they are trying to find some of these stores new locations in the city — but not all of them.

“Those retailers that are national players or large regional players are having conversations and looking for potential sites,” Wassel said. “But if they’ve got other outlets in the city right now and are covering for the lost space, then they’re going to sit by the sidelines for awhile to figure out what to do.”

Retailers that have expressed interest in opening locations downtown to replace stores destroyed in the attack include J. Crew, Coach, Cole Haan, Sephora, The Body Shop, Borders Books & Music and Brooks Brothers, said Wassel, who represents them all.

Retail real estate professionals in New York City say the outlook for 2002 depends more on the holiday season nationally than on anything in the city itself. Retailers across the country are tabling discussions about next year’s plans until January, after executives see how well they’ve done. But while observers have predicted this holiday shopping season has little chance of matching 1999 or 2000, some expect the drop-off to be small.

“Nothing could be greater than 1999 or 2000,” Consolo said. “But I do predict a good Christmas. People who are not traveling abroad will replace that by shopping more.”

Even if the tourism market takes a hit, overall the market is so strong that many retailers may not suffer at all, some say.

“More than 8 million people live here and there are 40 million tourists. Even if tourism drops off 10%, Manhattan is still going to have the best retail sales in the country,” said Robert K. Futterman, president of Robert K. Futterman and Associates, a retail brokerage firm. “There is nowhere else in the country where you get this type of volume.”

Consolo is equally bullish.

“This is still the fashion and financial capital of the world,” she said. “People have to come here to do business.”

While the city’s downtown will take longer to bounce back, the midtown retail market rebounded almost immediately from the disaster, brokers said.

Midtown is home to some of the best-known names in luxury retailing, including the Saks Fifth Avenue flagship store and Bergdorf Goodman.

Also in midtown, a major New York project is plowing ahead: The AOL Time Warner Center, a 2.1 million-square-foot mixed-used project planned for Columbus Circle. The project, set to open in 2003, is being developed by Columbus Center LLC, a partnership made up of The Palladium Co., Apollo Real Estate Advisors and The Related Cos., all of New York City. The retail component will be a 364,000-square-foot, seven-story complex.

In terms of dealmaking, brokers say that although demand for retail locations is not as high as it was last year, there is not an oversupply of space, and rents remain stable.

Tenants are signing longer leases and are obtaining better rent concessions, Consolo said.

“Last year at this time a landlord waited for a dozen offers on space before deciding,” she said. “Today if a good offer is on the table, you’ll most likely make the deal rather than waiting.”

 

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