Retail space asking rents plunge as landlords try to fill scores of vacant shops.
The average asking rent on Madison Avenue between 57th Street and 72nd Street, a prime shopping corridor in Manhattan, plunged 25% over the past 12 months, to $1,039 per square foot per year, and is down 37% from three years ago, according to the Manhattan Retail Report by the Real Estate Board of New York (REBNY):
With these slashed asking rents along with concessions, such as buildouts and flexible lease terms, landlords are now trying to attract tenants for their vacant retail spaces that are now densely dotting the major shopping corridors in Manhattan. The entire report is focused on ground-floor retail spaces.
Out of the 17 shopping corridors in Manhattan that REBNY tracks, rents fell in 12 of them. Rents on Madison Avenue showed the steepest year-over-year decline. But in terms of the three-year window going back to May 2016, rents in other corridors fell even further.
The principle is this: Brick and mortar retail – outside of gas stations, grocery stores, and auto dealers, accounting for about half of total retail sales – is under heavy pressure from online competition. The last thing these under-pressure retailers can handle is sky-high rents.
This is an issue in other expensive cities as well, such as San Francisco, where shuttered and vacant retail shops are everywhere. What happens is that after a 10-year commercial lease expires, the landlord doubles the rent, and the retailer or restaurant, knowing the revenues the business generates, says, forget it and leaves. And then the shop sits vacant. This happens time after time.
The way forward: slashing rents to where businesses can make the numbers work out. And this is now happening in Manhattan. Concerning the Madison Ave corridor, REBNY says:
High availability rates along the corridor have led owners to continue lowering their rents and offer more short-term lease agreements. Flagship retailers across the prestigious strip are taking advantage of the softening rents by either locking in long-term lease agreements, moving to smaller-sized spaces, or migrating further south.
And just when America’s brick-and-mortar shopping tradition is under relentless and brutal attack from e-commerce, more retail availability is being created, with immaculate timing. REBNY:
Manhattan retail inventory increased with new high-profile development projects such as Hudson Yards, Gansevoort Row, the Seaport District, and Essex Crossing, which all offer competitive asking rents and elevated visibility.
Amid these new, prominent retail availabilities, property owners are facing pressure to reprice existing vacant retail spaces at lower asking rents. As a result, many owners are also offering greater flexibility to prospective tenants in the form of shorter-term deals, concessions, and build-outs.
So here are more samples of the 17 shopping corridors that REBNY tracks in its bi-annual Manhattan Retail Report, showing average asking rents for available ground-floor retail spaces:
Fifth Avenue, between 42nd and 49th Streets
The average asking rent fell 20% over the 12-month period, the third year in a row of declines, to $878 per square foot (psf). Compared to spring 2016, over the three years, the average asking rent has plunged 36%:
Fifth Avenue, between 49th and 59th Streets:
This is the most expensive corridor in Manhattan, in terms retail rents. The peak occurred in late 2017 and early 2018. Since then, the average asking rent has fallen 22%, to $3,047 psf. So that’s a decline of $853 psf:
By comparison, this corridor is over 10 times more expensive than the corridor on 14th Street between 9th and 10th Ave and over 20 times more expensive than major corridors in Harlem. We’ll get to those in a moment. But when something is this impossibly high priced, is has the furthest to fall:
This decline is attributed to both historically high availability rates and low absorption rates, as high asking rents are diminishing tenant demand. Despite instances of rent reductions, newer owners who purchased spaces at peak market rates are slow to adjust their prices and are struggling to fill vacant spaces.
Bleecker Street, between 7th Ave South and Hudson St:
In this corridor in the West Village, the average asking rent has collapsed by 43% over the three years since 2016, to $294 psf.
East 86th Street, between Lexington Ave and Second Ave:
The average asking rents fell 9% year-over-year to $365 psf, “due to more expensive retail spaces along Lexington Avenue being recently leased out by Old Navy and JP Morgan Chase with remaining availabilities along the corridor being located further eastwards where rents tend to be lower,” the report said:
125th Street, between 5th Ave and Morningside Ave:
In this Harlem corridor, the average asking rent jumped 10% year-over-year to $137 psf, “attributed to several new spaces west of Fifth Avenue that came to market at the end of 2018, where rents tend to be higher compared to the east side. Deal-making along the corridor has remained steady with new tenants including Shake Shack, Whole Foods Market, Victoria’s Secret, and Bath & Body Works.” The average asking rent remains down a smidgen from 2016:
Columbus Avenue, between 66th and 79th Streets:
The average asking rent dropped 8% year-over-year to $279 psf, the third year in a row of declines. Over the three-year period, the asking rent has plunged 31%. REBNY says that the “price corrections” have actually “been ongoing since 2015”:
Broadway, Battery Park to Chambers Street
This corridor cuts through the Financial District, crosses Wall Street, and goes up to City Hall. It has undergone a huge change in recent years with major redevelopments all around, including numerous large residential developments in what used to be an area dominated by offices. Perhaps it was an outlier: The average rent jumped 19% in the six months from November to May, after it had dropped in the prior 12 months:
14th St, between 9th Ave and 10th Ave:
In this shopping corridor in the Meatpacking District, average asking rent dropped 12% year-over-year to $277 psf. Says REBNY:
Tourists, daytime workers, and nearby residents flock to the corridor for attractions such as The High Line, Google’s corporate campus, Chelsea Market, and Gansevoort Row. With this high foot traffic, 14th Street is viewed as the prime location for “experiential retail” concepts that cater to customer experiences, pop-up shops, fashion, and food and beverage stores.
Nevertheless, despite Google and all this enthusiasm about “experiential retail” concepts and what not, the average asking rent has dropped 20% over the past three years:
“Manhattan’s continued natural correction in retail rents is spurring deal-making across the borough’s top corridors as retailers reconsider new and existing ground floor spaces,” said REBNY President John Banks in the press release.
Price can fix a lot of problems. And there is always the other side – the very crucial other side: “Declining rents have fostered a healthier environment as more retail space is being absorbed at an affordable rate,” the report said. Because the easiest way to wipe out a majority of retailers on a street and then gaze at shuttered and vacant stores is to get greedy and try to obtain rents that the business cannot bear. At least a partial fix is to slash rents – and that’s finally happening.
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Where’s socaljim to tell me everything is fine and this isn’t what “he’s seeing”?
He’s out making America great again, maaaaaaaaaan!
The amount of empty space in my area is amazing. Yeah new shops opening, for however long it takes to burn through the investors’ money, but tons of places going empty and staying that way.
There’s a place on Paseo de San Antonio and 1st in downtown San Jose; it’s latest name was “Social Policy” (doesn’t that just make you want to come in and hang out?) and before that they were called something like the Blackbird Cafe, they’re literally just steps from a thriving Johnny Rockets, and we all know that location is cursed, because no one can keep a restaurant, coffee shop, etc alive there. When it opened as “Social Policy”, I went in and said, “Do you know this location is cursed?” and they said, “You’re about the 10th person today who’s told us that”.
You are right. I do support the president. I grew up in the city of Detroit and I watch it go down the tubes when NAFTA kicked in. It got far worse when China was let in the WTO. All the good blue collar jobs left the country. Ruined that place. My friends that still live there had to surround their homes with barbed wire. I am scared to visit them. Twenty five years ago, those were nice areas.
I am glad the president has the balls to do something about that. Clinton, Bush, and Obama were all worthless … they did not have the guts to challenge Mexico and China. Because of that, I support the president. I hopes he sticks it to China and Mexico. But I do have to admit, the president has some real warts and he gives many reasons to complain. But, I am all about the free trade so I overlook his problems. He better deliver or I will abandon him.
To be fair, Obama, Bush, and Clinton where not all worthless. Each one did some good wins. Bush did a good job with terrorism, Obama really did improve health care, and Clinton followed through with good economic policies. It is all three were worthless on trade. They blew that. Hard to say if Trump will be able to undo the damage … it might be too late. He got elected because he is the only one who wanted to fix the trade problem. You can bet both parties will be all about fixing trade from now on … If Trump is not able to fix the trade problem, at least he changed the narrative … that needed to be done.
“…all three were worthless on trade.?
Agree. But can take the lineage back further :-]
Hold on a minute. You’re all for free trade but are against NAFTA? And if free trade is the goal why wouldn’t China be allowed in the WTO? How are these conflicting view points resolved?
What is going on is not free trade. The US is getting screwed by crooked trade.
Way to deflect with a meaningless answer. What then is free trade exactly? And can you provide a single example of how China is being crooked? Free trade is exactly why Detroit was destroyed. Along with the rest of the rust belt.
sc7 – lol, too busy trying to find tenants for his socal shacks. I wonder how much rent is going to crash in socal when all the boomers trying unsuccessfully to sell their shacks resort to renting out their properties.
The retail and apartment vacancy rates are staggering right now. I think housing for rent will follow retail rent with a 30%-40% declines.
Funny you should say that. Because, I am looking for a renter. Home in Boston. Keeping my fingers crossed.
Good luck SocalJim. The Northeast and California are falling apart pretty fast. We just signed a new lease at a building after they slashed rates by 25% and threw in 1 month free to sweeten the deal. Multiple buildings in the neighborhood competing for us to sign. Our lease rate is 25% below the “current” market rate. For rent by owner looks even worse because most of the units aren’t as nice as the full amenity buildings.
For the first time in my life the rental units are actually nicer than units that are on the market for sale.
Ed, lots of calls. We will see. People seem to want to rent in the city of Boston, as long as it is near a T stop and within a few T stops from the action. At least those boxes are checked. Only problem is it is dated, to say the least. Most important, allow a dog.
SocalJim here … in areas where older people live, retail storefronts are fully filled. And, in areas where younger live, retail storefronts are in big trouble. You can extrapolate from here.
I guess they could open up some more poodle spas in those empty spaces.
I remember 15 years ago when stores would close in the mall and the same bonsai tree selling store would move in for a few months until another tenant rented the space. It would just move from location to location. I guess at the right price per square foot you can make anything work….
You don’t know how right you are, since the meaning of the Lenape term for the island was Mannahatta, or “Island Of The Expensive, Little Dogs.” :)
I live in a nice neighborhood in Charlotte, where literally we have a bakery for dogs.
“For healthy and natural dog treats”
And in Vietnam there is a street, Hanoi, I think,
called, “dog street” whose purpose is essentially diametrically opposed to my local bakery.
Declining rents also have to offset increasing taxes, higher minimum wages, obamacare rules, increased shipping costs due to traffic congestion rules, higher utilities, etc.
Briliant! Well said. There is a combination of factors that contribute to the sucess or failure of a store. What you have mentioned are all expenses, where rent is the least controllable. The others are mostly payroll factors, and people are the most controllable expense a store owner has. However, another factor in all of this is the consumer. As disposable income drops, due to HIGH apartment rental or mortages, car payments, transportation, GRUB hub expenditures, this puts pressure on pricing for a store owner.
All of these factors play in the success of a business.
Consumer demand, regardless of disposable income, is another. Tastes, fashion, and mere shopping habits have changed. This is not entirely due to Amazon either.
So, Making America Great Again, really is about reshaping how America works and functions. This is about changing a business model that America has used for the past 50 years. Retailers are not the solution to every construction project, or the solution for all social ills. Nor are the landlords!
The cities need to be aware, you can not simply pass a tax to business and spend without balanced budgets, and expect YOU the consumer not to be impacted negatively.
There is a fine balance between, government, landlords, retailers, and YOU/US. This can readily be seen, is the space “for lease” or “rented”.
Candyman – Retail owners have to provide a value added service and not just be middlemen. Why go to a store when I can by the same item online at a huge discount and have it delivered to my office or home. The problem is most store owners do nothing other than buy wholesale and sell to consumer at a 25%-50% mark up.
“Making America Great Again, really is about reshaping how America works and functions”
What exact changes are being enacted to change this “50 year old business model” to make America great? And when you say again do you mean more than 50 years ago when the individual, corporate & capital gains taxes were much higher?
America is not going to be great again – can not be great again – until we stop having the unbelievable privilege of having a global reserve currency that is completely backed by zilch. Less than zilch as Wolf has repeatedly shown.
I think it’s like expecting the Spaniards to have kicked ass energetically/ economically / entrepreneurially after extrActing that mother lode of gold out of South America in the 1500-1600s.
It just ain’t gone happen.
We have HUGE inherent advantages over so many countries in so many ways.
But the ability to press a button and send bits and bytes somewhere and have steel, oil, cars, etc etc sent to ur doorstep?
U can’t overcome that.
Oddly, at least two of those items can be solved with the idea of automation. Robots, my friend, robots. But it does make me wonder what the consequences are… increased maintenance bills, increased cost of electricity, etc, and heaven help us if the robots get organized and form a union. :) Then they’ll want rights for robots, reasonably working hours, oil and grease every day. Never mind the fact that there might be no profits, because all of the potential customers now have been displaced by robots, and can no longer afford to pay. OMG.
The potential externalities are enough to make your head explode.
Check out automation works fantastically well and it really makes it easier to shop and not spend 10 minutes waiting in line for your turn.
But realistically we are decades away from a functioning robot that can stock up shelves, clean, mop up floors, assists customers, package fresh, etc. The technology required for those kinds of motions is just not there.
A human being is a very agile creature, and all running on a about 100W of power
I don’t know what’s going on in Seattle because of so much new construction but when I first moved here in 1997 the Westlake Mall was booming. It’s where you catch the monorail to the Science Center. Now it’s mostly empty with paper or prettily painted plywood covering up store windows. There have been so many new high-rise apt. and condo buildings that have been built in the downtown core in just the past few years I thought the Westlake would boom again but I was wrong.
In order to promote an active and positive sidewalk/street life, many new multi-family structures are required to devote the street level to retail/restaurant/etc.
The problem is that the displaced street-level business were set to be OK from low lease prices in older buildings, cannot make a go of it in the higher priced new space.
Hence, less positive street level experience and a continual churn of failing businesses at street level. Add to that the general retail decline and the dandelion nature of new restaurants, and it’s hard to build the street life that you want.
They did the mixed residential in downtown Miami and it didn’t work. Those condos above are all owned by investors who don’t live in them. At night, after 6pm, downtown Miami is a ghost town.
There are areas in London like that. Blocks and blocks of expensive apartment with no coffee or chemist shop in the area because the apartments are empty.
I don’t know for sure, but I’m assuming this whole “real asset as an financial asset” as opposed to simply the place you live / raise a family, has bred / led a cross pollination of investment philosophies to foreign shores.
Apparently the Chinese think of apartments as assets – which if lived, become devalued.
And who knows what Saudis view on real estate investment is, as it’s only been a few decades since they were poor nomadic tribes.
What amount of chaos can decades of USA money printing, money laundering millionaire post communism Chinese capitalist newbies, and nouveau rich Saudis with not doubt little fundamental understanding of Western real estate markets, wreak? Well, I guess we have seen the upside of that, now we wait for the downside.
BTW, Wolf, have u seen any USA real estate stats that match remaining mortgage term to age of the mortgagee?
My assumption is there are a lot of 50+ ppl buying places with 30 yr mortgages, because “that’s what you do”, and anyway, that’s how everything is priced out. That is, how what size monthly payments a typical buyer can afford via on a 30 yr mortgage. Independent of age.
@RagnarD – hit the nail on the head. I know way too many people in their 50s who bought houses on 30 year mortgages, with no intention of paying them back before the 360th payment. Will not end well when they hit 70 and try to sell at inflated prices.
Two major problems with downtown Seattle retail are a decided lack of reasonable parking and an excessive number of psychotic street people. It’s bad enough trying to find parking that doesn’t cost $10/hour, but most of it is dirty, poorly lit, and marginally safe. Along with all of that they have made the parking spaces so narrow it’s challenging to maneuver into them. Add to that the increased size of the average SUV/truck, and most of the garages are guaranteed to cost you a trip to the body shop in short order.
As for the bums on the streets, in the 80’s they were pretty much constrained to Pioneer Square and alcohol. Now days they are outside of Nordstrom’s and so high they can’t even stand up. I watched one the other day spend 10 minutes trying to get both feet up out of the gutter. She could get one up onto the sidewalk, but the second was a task beyond capability, and when asked if she needed help she became violent. Unfortunately the Seattle city council feels these dregs on society are more of an asset than shoppers, but they can’t understand why businesses are leaving the area.
In nyc people use the subway. Why can’t you use public transport, walk or use Uber??
I grew up in Seattle , back when it was a real back water . I went to Seattle this week for an appt. The downtown traffic from the ferry a night mare, and then going up Yesler, thought I was entering some dystopian nightmare. Needless to say rolled up the windows and locked the doors. I am not sorry i moved and feel for the Seattlites especially the long timers. They need to stop electing idiots
This must be why you can’t find a rental in Eastside. Everyone is moving out of the city.
Yes but don’t you feel rich just looking at them?
no Ambrose I don’t. I feel sad and I feel damned lucky. I don’t go through my life “feeling rich” I been on the poor side, and always have that gnawing fear that drives me, so I don’t end up there again.
A minor aside.
In Cupertino, there is this place called Vallco mall, it is a ghost mall, has been for the last two decades, the only thing that propped it up was the AMC theater there. (that’s right, Cupertino, CA, right next door to the magical Apple space ship) Of course, this can’t be helped because the mall itself sucked, and there were better malls down the street a few miles.
The funny thing is the developers have been wanting to tear the place down for years now, trying to put in a set of condos and such. Their plans went for mixed office use, and the taller and taller condos. Until recently, they’ve been somewhat stymied by the residents in the area, because the development plan would make traffic pure hell, and overcrowd the school districts. Then I guess enough of the council people in Cupertino got bought by the developer that their plans got pushed through.
It was utterly hilarious last year, where at the Cupertino library, there were the local residents of Cupertino (mostly white and asians) who were protesting about the changes to the character of their neighborhoods on one side, and how it would make the place more congested and such. And on the other, the “people of color” that the developers bused in who held up signs and such that went like “affordable housing in Cupertino for everyone.” As if those condos which would be sold on the order of $800K to over $1M plus would be affordable to the said “people of color.”
This was such delicious irony considering how the media have played up for years the reports out in SF that old “neighborhoods with character” were being gentrified, and old residents were leaving in droves due to lack of affordability.
Cupertino’s former City Attorney Randolph Hom filed a claim against the City, stating that the Council fired him for questioning the legality of the streamlined Vallco proposal (brought by Sandhill Corporation and the Abu Dhabi Investment Authority) and that members of the Council threatened him with retaliation unless he supported the proposal.
The investors created a PAC called “Cupertino Getting Things Done Together” to donate freely to members of the Council.
Here’s a classic example of Citizens United (aka corporations are greater persons than citizens) working against the citizens.
I also remember that one of the former mayors, I believe it was Barry Chang, was suspected to be in the pocket of the developers too. A lot of under the table dealings there.
In this case, it’s truly interesting because a good number of the residents of the city knows its become truly crowded there already, and traffic (thanks the Apple) is getting worse. So, they want to slap a lid on development, or at least slow its progress. But the local government, under the guns from state and one of their special propositions that was backed by Scott Weiner is trying to force development into the cities to build up housing stocks.
There is a good amount of NIMBY here, but the citizens of Cupertino just aren’t as powerful as the people who live in Palo Alto to be able to resist the guys like Weiner and their “affordable housing” developments. After all, they don’t have a Page or a Zuckerberg or a Cook living in their city
Too bad for the building maintenance companies. They’ve been absolutely killing it. When a landlord gets nosebleed rents they do/pay anything to make the tennant happy. As rents come down they worry over the cost of repairs, delay upgrades and try to cut corners.
Surely this is not $3,000+ psf per month for 5th ave? Can someone set me straight on this question? I know I’m a rube, but what can ever be sold that would cover this + other costs. And, the places sit closed for 12 hours per day.
I think that’s in time square so probably the most expensive retail space to rent in America. Maybe not so profitable of a business but if you include the prestige and advertising potential then the value would be higher. I think there a music store chain that has a location near there just for that reason.
But maybe the crap the stores sell there is really expensive. Theres a place in Atlanta that sells $400 candles. That candle would probably be $800 in time square.
I have a home on 77th near Madison. Whenever I go there, I usually walk up and down Madison. So many crazy designer stores. Women actually buy 3 and 4 figure clothing items from those places. They walk out with huge bags … then jump into private black SUVs. They must drop 5K per visitn. Then they wear that stuff to Daniels on 65th, or to Jean-Georges in the Mark on 77th. You should see those two hangouts … private drivers lined up and down the streets waiting for the call. Dinner bills for a group approaching 1K. Crazy stuff. If you make it to NYC, you should visit the upper east side. You will see why the massive rents on Madison make sense.
It’s a small stupid world you live in. It will come crashing down soon. Of course soon is rather ambiguous. Soon could be 6 months. It could also be 60 years. Enjoy your unearned bounty while you can.
Per year ain’t all that bad on those crumby side streets. I have never been there, but at those prices the places must be rough.
I must be a rube too, because I too thought the outrageous numbers were per square foot per month.
Searching the article, I did not find “annual” or “year” to give context. Hint, hint. :)
The RE industry uses both measures, per month and per year. And you get used to it after a while. It’s like speed in feet per second and miles per hour, only with speed measures, it is always part of the abbreviation (mph) which is not case in RE. I have now taken your hint and noted this in the article :-]
IT also varies by location. Some areas quote sq/ft per month while some quote pre/year.
I haven’t been in Manhattan in a while, but going by similar “high end” shopping districts around the world I dare to take a guess and say 80% is clothing/fashion accessories and the rest split between watches, “body care” and fashionable eateries. I don’t know if Manhattan has some odd long-term commercial contracts which allow, for example, that old and not particularly beautiful flower shop to survive in the middle of the Bahnhofstrasse in Zurich. It was already there when I was six and at this rate it’s likely to outlast me. ;-)
We are not talking about products with margins as high as mattresses but they are not too far behind.
The problem of course is you have to sell a whole lot of $2,000 handbags, no matter how high the margin, to cover $3,000/ft² per month rent. And, forgive me the pun, luxury stores are a dime a dozen these days. It means a lot of competition, sometimes between stores selling exactly the same brands and as pricing on these items tend to be non-dynamic, customers will just pick a store at random.
Again the problem is reckless expansion. In this case the brand themselves hide behind specialized franchisers doing the heavy lifting for them but will happily report balance sheets bloated by hefty franchise fees and purchases by said franchisers.
To the best of my knowledge franchisers seem to be holding up as a whole, but the occasional bankruptcy is starting to pop up.
But when you see empty stores loaded with €3,000 handbags and five salespersons inside looking completely bored out of their skulls you know the writing’s on the wall, just like all those Burger King franchisers who built enormous restaurants without any clear path to profitability.
Until investors are ready to throw good money after bad, all is fine, but when they panic… the fireworks start!
Per year. But do the math
1,000 sq feet= 3m/ year
The fancy stores on Fifth Ave are mostly loss leaders. The brand needs a presence there but the money really comes from products that the brand mass markets. Those expensive handbags don’t pay the rent, it’s the perfumes, sunglasses, logo tee shirts, and other mass market items that pay the rent. But they need the cachet of a Fifth Ave address to sell the more accessible items.
Petunia – Pretty sure the $2K handbags that are made for $5 in China are helping to pay the rent. Agree that the stores are probably operating at a loss that is chalked up as an advertising expense.
If you go to Tiffany’s, most of their sales comes from the $125 items and under from the back of the store.
Tiffany’s is probably one of a few stores on Fifth Ave. that makes money because they own their building.
Get up to speed Paulo. You can order a $75 cup of coffee with your avocado toast. Look up “Klatch Coffee”.
Something tells me he never sold that product. I looked it up and it just says sold out, with all the regular $20 coffee readily available. Even in the product pictures it only has an award plaque picture, but the product in the bags has different names on the labels.
Some lame marketing gimmick. My gut tells me scam, my gut tends to be pretty close most days.
I am seeing rents decline for retail space all over Los Angeles and a lot of office tenants qre subleasing space because they cant afford the rent. The landlords are very leveraged so this could play put as a systemic problem unless they have other reserves.
Wolf what about the flow on affects on the value of the buildings, usually building values are a multiple of the rental return.
Yes, that is definitely a consideration. It’s less of an issue if you have 30 floors above it, as you might in Manhattan, than when you have three floors above it, as you might in San Francisco.
First retail space becoming vacant as it becomes very over priced
Then the same thing happens to commercial space .
Finally it happens to apartment rents, which are partially insulated because of rent control.
We are at the point where all three are being affected . When the inevitable recession comes, there is going to be blood among all categories of real estate investors
Rcohn – Retail space is going vacant because ecommerce has become so dominant. Why buy anything in a city store when I can get it at a 20%-50% discount online and have it delivered to my office or front door within 1 day?
Commercial space is declining because of overbuilding and companies shifting to remote work and hoteling. Again, technological advances have reduced the need for physical space in an office. There will never be enough future demand to fill all of the vacant commercial space in major cities at this point. What happened to all of those factories in industrial cities? I imagine there will be 1,000’s of completely vacant office building in NYC and every other major city within 20 years.
Apartment rents are going to crash because of overbuilding and overpricing. There are so many alternative cities for workers now that it’s impossible to justify big city rent even if you make a ton of money right out of college. It just makes more sense to live in 2nd tier cities like Nashville, Austin, Denver.
All sectors of real estate in NYC are doomed.
I have heard about remote working and hoteling for 20 years now.
I think it will take at least another 20 years for this to go mainstream.
Preach it, Harrold. I’m sitting here in a coworking space that bet big on the remote working/hoteling trend. And it’s going out of business. News story:
And here’s the leasing agent’s information for the next tenant:
I wish him a lot of luck on that asking rent. Downtown Tucson already has plenty of vacant space.
Jeremiah’s Vanishing New York blog
covers the ongoing destruction. The long-term trend has been to buy a building, jack up the rent to drive out tenants, and replace it all with something horrible, and aimed at the high-end.
For many of these landlords, empty spaces are not a serious issue if they can’t find the right development opportunity immediately.
Ook, that was a really hard blog to read first thing in the morning. like a morning punch in the stomach. but thank you. it puts things in enough perspective for me here in SF, that i can continue to move through this stage of grief, put my head down and burrow with a broken hearted kind of animal optimism ahead in this new Death reality… and do my job as artist and forge something new based on the eternally archaic that i hope will be far enough ahead to be… something a little different at least. fun. a baby green rejection of all THIS. i wanna be part of the childlike surprise some of us hope to court at least amongst ourselves and our own broken hearts.
Yes, sad story but inevitable. How about pulling out of that mega-monstrosity (all the major cities are…) and landing in some of the many, albeit small, art communities that big city refugees can relocate to? If the variety is what makes places like NY great, and those elements are being swept-out by the investor-class, do the adventurous thing and leave them in their vertical enclosures. If more creative spirits would re-inhabit some of the abandoned, antique towns throughout the country, where industry has up and left, we might have a mini-renaissance of human community, not the vacant, soulless bunkers that the cities cultivate. Btw, I just can’t imagine having a blog lamenting the evaporation of a culture. Leave NY and let the sophisticates eat cake.
(HowNow, my response to you got long so it’s a new post below)
This is all driven by e-commerce or is some of it due to people tightening their belts or simplify having less disposable income? Have Wall St. bonuses per person dropped, I thought the bonus pools were not as big and jr banker pay was rising and they were hiring more newbies.
Bart – It’s just a function of the efficiency of ecommerce. If I need cough drops, I can buy them online at a 20%-50% discount to what the corner store charges, they ship within 1 day directly to my office or apartment. The only goods I do not buy online at this point are groceries. Everything else is cheaper and much easier to locate and buy at the best price point online.
I’m even surprised banks are still paying for retail space. My bank doesn’t even have brick and mortal locations. The only retail businesses that can be successful in major cities right now are restaurants and grocery stores. Every other business is just a middleman that provides zero value add and charges a massive mark up.
During the Great Recession, I remember reading stories about unemployed Wall St. types who were putting up their homes up for sale and planning to move to rural Vermont. Property tax rates in many of the NYC suburbs were high even then and are probably higher now. When the next recession hits, there will be a lot of people in the counties around NYC who will not be able to afford their $20,000 per year property tax bills. See http://www.empirecenter.org/wp-content/uploads/2018/04/Benchmarking_PropertyTax_2017.pdf
Rockland County is probably most famous these days for its large number of measles cases, but it ranks right up there for outrageous property tax bills. In 2017, a home worth $500,000 came with a property tax bill of over $27,000 in the Haverstraw-Stony Point School District in Haverstraw, NY.
7 years ago I moved from Orange County, NY (adjoining Rockland County) to WNC. My property taxes were $12,000 a year on a modest home. Taxes went up about $1,000 per minute of commuting time to NYC in that area. If I lived in Monroe-Woodbury, instead of Hamptonburgh, my taxes would have been in the mid 20s. Insane. I now make less money but have more money at the end of the month. For a lot less stress and the mountains are beautiful. Much lower utilities, taxes, insurance, etc. I do miss NY bagels, pizza, hard rolls and good Chinese food.
Wolf, if I interpret what have said correctly, rent likely doesn’t change if you are mid contract. So the drops here, averaged for the whole market, are driven only by the changes in those that have been renewed in the period. The actual drops therefore must be considerably more when the static rents are removed from the average. Therefore the practical rentable value of all the properties in those districts must be plummeting.
A tenant can ask the landlord for a rent cut. This happens a lot these days. I will post an article on this very topic by John McNellis here in a couple of days. He is a retail landlord (strip shopping centers, etc.), and he is getting those calls from his retail tenants.
When the tenant’s business is teetering, landlords are motivated in this environment to cut the rent rather than have the tenant shut down the business and the store sits empty and doesn’t produce any rents. However, there are also some real problems with this, as he will point out.
Also, “asking rents” (used in this article) are a measure of where the market is today. They’re like price tags at the store (they’re also asking prices, though most of the time, they cannot be negotiated).
Someone who signed a commercial 10-year lease 9 years ago would be paying below-market rent today until the lease comes up for renewal. Then the landlord doubles the rent, and the tenant moves out. So now you have an empty store, exposed to the market and asking rents. Which is the problem we’re looking at.
Meanwhile rents in suburban Chicago keep going up. Of course it’s not Manhattan, nor anywhere close to those absurd prices, but it’s harming retailers of all types. Most businesses can’t operate with such high rents, so essentially people will be forced to buy on line here in still fairly population dense Chicago metro. And that is all about property taxation , for a broke and insolvent state. I see properties sit empty for years.
I’ve lived in the Inner Richmond in San Francisco for 22 years, two blocks from Clement St., otherwise known as “Little Chinatown.” This has long been a vibrant middle class shopping area with lots of Asian markets and low-price restaurants. The last time I walked up the street I counted 25 empty storefronts in 12 blocks. Many have been empty for 2 years or more. One of them, on a prime corner location, has been empty for 15 years. The landlord was interviewed recently and said she wasn’t going to give a lease “for nothing.”
Prop 13 gives that landlord the flexibility.
“One of them, on a prime corner location, has been empty for 15 years. The landlord was interviewed recently and said she wasn’t going to give a lease “for nothing.”
I don’t get it: she’s been paying sky-high property tax the past 15 years and she just shrugs it off?
A friend of mine had a speciality oak furniture store. During a big downturn he worked out a deal for a percentage of gross store receipts for his rent and the landlord went for it to keep the store occupied. Of course the same fellow sold restored antiques for cash through the store as well. On really good months the landlord was very very pleased.
It’s never as bad as Wolf reports…a new outlet mall just opened this very morning on Staten island and 65 million people visited NYC last year…imagine that!!! But the regrettable & unfortunate fact is that too many socialist mayors run America’s great cities…whose concerns are less the brick & morter business owners and the working class people who shop and work in their respective city centers and more the illegal & impovished who live on the perripheral… PJS
I just love this. Unintended hilarity is the best…
“… and 65 million people visited NYC last year…imagine that!!!” Yes, and asking rents have plunged despite them, as pointed out in the article concerning the tourist shopping corridor in the Meatpacking District. You just proved my point.
And yes, new stores move in, as pointed out in the article, motivated by slashed asking rents, as pointed out in the article, and cutting asking rents to fill stores is a fix and helps solve this problem, as pointed out in the article, which it sounds like you didn’t even read.
But it is totally hilarious for you to use “a new outlet mall just opened this very morning on Staten island” to prove that asking rents aren’t getting slashed on Fifth Ave, and that things aren’t “as bad as Wolf” says — this was actually the Real Estate Board of New York saying it. That just made my day. I’m still laughing…
I actually lived on Staten Island and everybody there used to shop in New Jersey and PA because there is/was no sales tax on clothing. If you were buying anything expensive, furniture, appliances, etc., you bought it in NJ because they didn’t tax any out of state purchases.
Remember it’s those “…..socialist mayors……” who have to deal with the reality of America’s cities that suffer from the effects of global trade “fair/unfair” policies over which they have no control and throw so many into the streets. What is your solution????
I think NYC’s core problem is that it’s an overcrowded, overpriced, dump. Why the hell would anyone pay a premium to live there? The plummeting housing values and rental rates seem to support my thesis that large numbers of people and businesses are fleeing for greener pastures.
To make matters more interesting, if the landlord turns the gas off to stop getting billed and save money, then gets a tenant and wants it turned on, ConEd won’t turn it back on. ConEd is no accepting any new customers due to lack of new gas pipeline infrastructure.
A sign of the times: The BBQ place is being replaced by a ramen noodle place. Who goes out for ramen noodles?
Realtors on date night.
Petunia – Lol, they aren’t serving cup of noodles. I think people would rather pay $10 for good ramen then $50 for bad BBQ.
I’d go out for freshly made soba noodles. All day every day.
Ramen, I’m not so sure.
It’s interesting that retail shops are folding at a time when young people are concentrating in the city more than ever. Perhaps the retail shops that are dying off are trying to cater to wealthy people traveling into the city, not people who live nearby in the city.
Most of the things the young people like are not readily available anywhere. They tend to buy a lot of electronics and hipster type brands only found online in flyover country.
When you are overloaded with student loan debt and facing outrageous apartment rents, there is not a lot left over for discretionary spending. Moreover, even in San Francisco, a lot of the high tech retail stores could not compete with Amazon and closed.
Bobber – It has nothing to do with disposable income. I don’t shop at stores in the city because the same goods are sold at steep discounts online and at Costco. Ecommerce is killing retail. My disposable income is allocated towards experiences (travel and dining out) not buying stuff at stores.
At the other end of the country CE went bad under the auspice of redevelopment agencies. City government thought by raising rents they could raise taxes and attract a better clientele, rather than allowing competition and the market to set rents, and attract a class of mercantile trade according to the consumers you have, and not the consumers you want. This state as a whole runs a boutique economy, compassionate to the service class, but probusiness, where most of the working class finds jobs. If rising rents forces shop owners out, falling rents should do the opposite. Seems like it would be good for the economy while renters can afford to pay their help.
Who needs to go to restaurant with Doordash? No need to dress. No need for transportation. No need to pay inflated prices for fancy interiors. No time wasted in transportation and fidgeting while your food is cooked.
Who needs to go to a store? No need to dress. No need to find what you want. No need to not find what you want!!! No need to schlep what you bought. No need for transportation costs or time.
Soon nail salons and haircutters will come to you! No need for them to rent space. No need to wait around in stinky smelly surroundings.
Gas stations? Going to electricity brings the fuel supply to you.
I give up? Why go out of the house?
NotMe : You may be onto something there. If people stay home that means I won’t have to look at all the slovenly dressed people out and about. It’s getting harder and harder to distinguish between the well heeled and the homeless these days.
Might be a blessing in disguise, ;) ;)
Amazon and Walmart are battling it out over the best shipping. Free 2 day delivery to free 1 day delivery to free same day delivery. Membership fee vs. no membership fee. Not at all location and not all products. This is not good news for most retailers.
Where will it all lead? Ship it the day before you order it?
I want amazon to get my shit here well before I am aware I need it.
Alexa is on the case, don’t worry.
yes. they already will ship you clothes they pick out for you regularly; you return what you don’t want. it’s insane.
Maybe some of these retail occupants are fleeing NY because for every buck they make, Cuomo and de Blasio team up to take a buck fifty?
I did my best to read through the comments, but man RE gets so much attention. I worked for years in retail for a large corporation. We sold high end construction equipment and we still had to watch numbers. I don’t understand how any niche whatever store can survive paying $4k/mth for nothing. Recently relocated to Arizona (N Scottsdale) and I’m shocked at asking rates for retail. Granted it’s pennies compared to some major markets, but there are millions of sq ft sitting vacant here. How long can you just absorb the loss as a tax write off?
yes… you have uncovered the single problem i am constantly chewing on: HOW DO YOU ESCAPE THIS AND BELONG IN A THRIVING COMMUNITY away from all this?
i cannot accept that everything’s completely locked down and you cannot.
but i believe and see that this is a bigger change than just cycles of moving in and rehabbing the old.
these last decades have bred a nation of passive consumers and there isn’t a whole lot of confidence energy or enthusiasm for change or defiance. i only see childish tantrums and i fear for us all.
a lot of boomers that i’ve known here have cashed out to live inexpensively in remote areas and the fantasy goes poof toute suite because then you’re just gentrifying someone else’s town.
and how do you make money? even if you’re telecommuting, traveling, touring, shipping… it’s always the economics and you still need some kind of SYSTEM. or you’re always courting the rich and that is no fun at all.
right now the internet is burning everything up and cycles happen in blinks now. the mindset for rich and poor alike seems to be panic and the modern mindset is twitchy distracted and unable to follow a single train of thinking so i have no hope that things are going to better because i only see people getting more and more twisted and mentally ill or in anguish.
and there used to be affordable ANYTHING for artists thinkers and doers to live small and create things. no one CREATES much. entrepreneurialism for the most part seems to be dead ..tech entrepreneurialism isn’t about bringing anything in that’s needed; it’s about inserting yourself and taking a CUT and externalizing ALL costs and internalizing ALL profits.
but that’s how and why everyone’s aiming for the rentier class to not make anything but skim.
artists are even admitting they’re not making much new now that instagram has made art a popularity contest. so there’s very little radical new thinking in a nation that drugs anyone for being fidgety, bored, distracted, sad, depressed.
there are no new ideas. very little is allowed to be truly beautiful or sacred.
i think we’re just gonna have to wait this one out a little bit. everyone’s over-reaching and panicked. i can feel it.
i’ve got no answers for myself, much less anyone else. i’m just doing my job on the low, trying to start a new different kind of underground with bad ass thinkers who’re willing to trash a surveillance system or do something INTERESTING defiant human… ANIMAL for a change.
so we’re far beyond squatting in barns and starting parties.
well, for one thing, the artists and thinkers have suicided, died, or they are struggling and depressed and isolated because suburbs and places away from cities don’t make it easy to have community. that was the original point.
but people are going to have to find their bearings.
i’ve had some freaky youngsters come to me and ask for guidance so i know it’s happening elsewhere as it was done for ME when i got here. so us wild childless ones will have to take on new wild children. that’s what we’re here for, after all.
to teach them how to thoroughly embarrass themselves and NOT CARE. only then can you be truly interesting and come up with anything good.
but HowNow… i agree with you. it’s TIME. i’m doing my part. others will and i promise you this: YOU WILL NOT HERE ABOUT THIS ON THE INTERNET or any mainstream thing.
just like how they twist the employment numbers to spin the narrative, the new world needs people immune to the Dominant Narrative of B.S.
that’s why i dig Wolf’s site and the people who inhabit it.
I have seven millennial grandchildren who are all very independent and frugal. Their parents all worked, so they mostly grew up in our house. Our family motto was, “Normal sucks, weird is good, and don’t overlook bizarre!”, which they all embraced.
I have hope for the future.
Please keep in mind that the arts are a business too. I got to see this up close and personal for many years. Everybody gets a cut in the arts, it’s not about the internet, it was always like that. Oftentimes you have to sell out cheap to get your “art” out there and make a name for yourself, then they come to you.
Sometimes where you are or want to be is not the right place for what’s hot and earning in your niche. You need to make knowing that your business, if you want to survive in your art. Sometimes you do something else for a while because you don’t want to make the trade off.
Those that survive in the arts struggle at every level of income. They never know where the next job is coming from, they don’t know if the best thing they have already done, is as good as it gets. In the end, it is just like any other job, and knowing that is what matters most.
(Petunia… t got long… re-posting response below)
i just crawled out of bed after arguing with James while cuddling about the reality of Ghandi’s idea about means of production coming home. he said i wanna go into politics then. i said no way.
but i did imagine next Wolf Meet that i go panhandle for your air fare because i DO believe you’re one of the few people i know who doesn’t give up and i don’t even KNOW you.
you’re like the woman in the punchline of the old Eddie Murphy joke where the girlfriend gets hit and sweetly tells her boyfriend to calmly… ” go to sleep.”
you’re like THAT. don’t count you out.
i have all these young girls in their early 20s suddenly coming to me seeking me out to “help” them but i test them and they mostly think love is a consumer item to “get.” so i’m trying to teach them sweaty hard scary on-your-knees love because it’s related to freedom having a good time and defiance.
i’ve got a DJ coming back into my life after a long odd courtship, and i feel a party coming on… but i’m not ready YET. and these kids and their “underground”? apparently it’s a lot of men supporting women and lesbians while they take the spotlight.
i said THAT’S NO UNDERGROUND. the UNDERGROUND is a wild west of possibility and audacity and mess and secrets and excitement.
Petunia… you and i are an underground in the making. lately i just “know” certain things. you’re one of those KNOWINGS.
get ready. SOMEHOW we are gonna mind meld. i’m already a little overwhelmed by my own ideas and megalomania. but what else is there to do with the time i’ve left here? ain’t nada on TV.
this is akin to going out and playing.
watch that old twilight zone episode, KICK THE CAN. it is my story right now.
India has tightened the noose on E-retailers and America should too. Understanding the value of brick and mortar stores to local communities India has placed several restrictions on E-retailers in order to level the playing field and make things fair.
By far the worst abuser of the current e-commerce system here in America is Amazon which has developed strong ties with the government. Amazon has even incorporated a complacent United States Postal Service in expanding their advantage over businesses by delivering Amazon packages at a discount and even on Sunday.
To make matters worse state and local governments have put special packages together with incentives aimed at luring Amazon to build in their areas oblivious to the damage it will cause in coming years.
“america should too” is a funny constant refrain everywhere. the postal system has already been gang raped and right now what’s left is a pig in drag.
it’s more than obvious by now that we’re on our own, B Wilds.
ah, but Petunia i wanna go beyond the helplessness and the scurrying around at the hem of the rich to survive. i know that we MUST to some degree always be a part of this system even as we fake-reject it (you still end up dumpster diving etc).
and HowNow was talking about a huge WTF problem regarding community and being evicted out of cities and anything AFFORDABLE while being slated as the ones to live in the cracks…what cracks? and now people don’t know style or color. how many newscaster women do you see, Petunia, with darts that point 2 inches above their bust apex???
guys here think merino wool tshirts are haute couture. CEO guys who can barely feign respect for humanity.
so to seduce from the made-in-china ethos, you’ve almost gotta make a culture of the opposite in attention to detail and then you’re shuckin and jivin for the ones who least NEED what you’re selling/making.
so who’s your clientele in this huge economic divide???
i refuse to scurry for anyone. i already barely escaped becoming a maid arrested for trying to sabotage rich people (one future scenario i saw for myself when i “died” as i was before). so how do we do that Ghandi thang where we bring means of production back HOME??? without waiting for permission.
that’s what’s killing me; the absolute acceptance of our current predicament. no push back. and like McLuhan says i think, you can’t fight back by avoiding it because it’s all around you in all you must DO and be a part of.
so yes. you’re right… art is actually NOTHING but business politics and whoredom just like everything else now. but i’m trying to find a hole… something to try small on the low locally… i’m trying to use my art of seduction and magic to make reality.
and bring back superstardom in the name of independence not “pay me” and corporate sponsorship. can we do nothing on our own?
Wolf talks about his final gig, i call this part of my life “my last ACT” because i AM my art now and i’m testing out a theory now that i have become nothing but Idea.
i believe a lot of crazy magical stuff because i myself am proof of my own philosophy about magic coming out of the strength of taking a beat down, so i believe in the future of Humanity or screw humanity… we don’t deserve a whole lotta bupkus to nada right now… but i believe some kind of OH NO YOU DON’T animal response should kick in at SOME point. seems santa claus is more real than what is left of the young american sex drive and belief in romance.
this defiant fantasy of some business rebellion on the low…some scene… something secret special sacred that you can just pull off the shelf.. you have to sweat and be embarrassed and participate and believe in starting “hello” kindness from the ground… this is the opposite direction the world is currently going with this love of victimhood.
i nearly had a gay trainer friend at the gym go off on me when i said my friends had voted trump and i laughed that people thought they were evil and he nearly burst out of his skin. i said YOU’RE GAY. didn’t we fight for the right to be INDIVIDUALS???
art is meaningless to me now that all the people who fought for rights are trying to take away others’. i didn’t know it was this backward. progress is a joke.
anyhow, this is long but i love that you even know i exist so i’m always trying to keep you on the line so’s i can track you and hang out with you and paint our toenails and watch old twilight zones and plot the underground because Miss Petunia if you came to Wolf’s thing, you and i’d have it all sewn up and i’d have my work cut out.
i feel like i’m mixing art with business for real, a la Andy Warhol. and maybe Basquiat. only both of those men got bitten by the dog they courted. i somehow think i will stay clean. go for something higher than ..the stuff.
hey. it’s worth a try because if anyone could start another kind of Warholian Factory that was in the service of “FXCK THIS” instead of FXCK YOU… then i’d succeed.
we fail when we forget and think we wanna be the starlet. those days are over. as you can see from the internet stardom is a vanity press now. you pay to promote others’ crap and lose your life.
screw humanity. i read that heinlein story Unamused mentioned and that far back he saw the end so he mostly dresses up his own one-handed stories in sci fi concepts. we’re all gonna die anyhow so look at her tits NOW.
i get it. but i’m a cartoonist and did my own one-handed drawings before i was old enough daring enough to steal my own porn (still before 21) and before the internet.
you used to have to fight to be a perv. now it’s just in your hand in public.
anyhow, yeah, Petunia.. i digress as usual. art. we’re all pervs dressing it up in business, really. even rock n roll was just for guys to get head without the headaches and all the conversation.
and the end of the world is because someone figured it’d be a good idea to sell more crap by telling people how much crappier they were than they originally figured they were from that original sinner stuff.
James is working with a young kid who’s paying $200 to rent a motorcycle trailer on the street with no bathroom access, and he has to sometimes share it when the owner gets another sucker.
how do you sell beauty to such a people??? rich and poor. we’re incentivized to be sociopaths. fighting it feels suicidal.
it’s time to bypass heinlein and mainline Marquis de Sade again. i can tell. it’s getting ugly (but beautiful…de Sade is ALL defiance to me).
speaking of which, i wanted to bring codpieces back as my own artistic reaction to the emasculation of men. there’s a gay throwback at the gym who swings like a bull with all this…stuff “clanging” between his thighs–and he’s a former cop i get tips from, and he absolutely scandalizes the techy people who now go there.
My honest opinion is that you are stuck in a bad place, and your Latin psyche is allowing you to hide in fantasyland. If fashion is your art then pay homage to it where it exits. I think LA has more of a fashion scene than SF ever did. Take it where people care about it. Take it where it sells.
I have a big huuuuge toothy smile and i chuckled…
James would agree with you regarding “latin psyche=fantasy land.”
but a lot of crazy stuff that i planted years ago when i thought i was mad, is coming true and i’ve got a whole new support system i cannot turn tail on.
i’m a small pond girl now. but you got me thinking of being ever more creative…
LA was the site of my existential FXCK IT ALL awakening that was so thrilling and thoroughly bridge-burning and exhilarating, i stuck my foot out the window on the grapevine and kid you not i had myself on the way home no lie.
i love LA but if i go back there i’ll end up babbling and playing with dog poo next time.
man, LA… James saw photos of people welding crazy bicycles and… nah… i’ve got a gift here. rent control is like i’m RICH. i can’t waste what i’ve got on small ideas. i’ve gotta go tits out.
watch, Petunia. no lie. i’ve GOT THIS…
[at least uh… i *think* so]
but Petunia… you are wildly underestimating me; i’m also trying to “MAKE” a scene, not join someone ELSE’S. something economic artistic philosophical with heart interesting fun and very fxck you to all THIS.
i can only hope to experiment because with all this wisdom and brilliance in the world, is everything really so binary that all we can do is think capitalism or socialism?
i don’t want either one so all i can do is try and make up something small funky real and messy and be a part of inspiring other experiments. even if i’m so wrong, i like the idea of seeing people with a sense of AGENCY again.
you’re lucky you weren’t here at the Wolf Fest then, because i’m not even about the fashion industry. i’m trying something more insane than you can imagine.
but i came here on the fan letters of a woman who was running HER own scene and i learned from her to use myself to start things for others, and enjoy it.
i’m not about going into someone else’s crappy bubbled industry and swagger. i dare say i DID that once and found it wanting.
the next real fun adventure is to START something. just out of reach and insane. it makes these times bearable and such action keeps me only seeing “pretty things.”
These numbers are incredible.
I own a small retain store in Reno, NV. We are proud to finally have entered the 5 digit a month gross sales range on good months. It has been a 6 year journey now.
We pay $13sqft/year up from about $9/sqft when we opened. There is absolutely no chance in hell that we could survive anywhere near the crazy numbers those businesses are paying. It absolutely astounds me. Sure we are a low volume niche business, but even if I throw numbers into running something like a subway I can’t understand how they could afford prices like this…