Generalizations are by definition never completely accurate, but it is usually fair to describe the overall status of a sector of the real estate industry as either good or bad. Unless, of course, you’re talking about the current state of New York retail, where it is getting harder to tell whether we are in a golden age of robust rents and happy shoppers or a dark age of Targets and drugstores getting robbed every five minutes.
It’s helpful to remember where retail was before the pandemic began. Things were, to use a term from the prior paragraph, bad, with the seemingly unstoppable rise of e-commerce making the idea of leaving your home to shop less and less appealing. And once Covid did hit, making the idea of leaving your home to shop a public health hazard, a wave of retail closures and bankruptcies soon followed. It looked like the final nail in the coffin for an already struggling sector.
But it wasn’t. As it turned out, shopping in stores was something people were actually excited to resume doing. Manhattan retail rents have now risen for six quarters in a row, and the number of available ground-floor spaces has dropped 33% from its mid-2021 peak, according to data from CBRE. A pair of recent blockbuster retail deals on Fifth Avenue—Prada buying its 724 Fifth Ave. home for $425 million and Gucci’s parent company buying 717 Fifth Ave. for almost $1 billion—were also widely seen as a major vote of confidence in the sector even as the back-to-back timing may have been coincidental.
So, hooray! The predicted retail apocalypse didn’t happen, and now the sector is enjoying a smooth recovery from the pandemic with nothing but brighter days ahead, right?
Well, not exactly.
The city’s rollout of its legal adult-use marijuana market has devolved into its own universe of dysfunction at this point. A lot of unlicensed smoke shops selling cannabis products have taken retail leases and seem to be making money and paying rent, which should in theory be a welcome boost for any retail landlord. The issue is that this booming business is by and large illegal, and there is a growing effort to crack down on smoke shops by going after property owners. This has turned what should have been a boon for landlords – a new type of tenant to fill their storefronts and provide them with rent – into a legal nightmare.
And then there’s theft. This issue has been all over the news in recent years, but a Walgreens executive’s comment in early 2023 that the firm might have “cried too much” about it in 2022 seemed to indicate that its salience was on the decline.
Not so in New York. Retail theft was up year over year as of mid-March, according to NYPD data, and a series of high-profile decisions have helped keep the issue front and center.
In September Target announced it would close its East Harlem store and blamed the decision on theft and organized retail crime. It, instead, is opening a store right nearby. In January Gov. Kathy Hochul made combatting shoplifting a centerpiece of her State of the State address, although the state Senate has pushed back on this in its recent budget proposal. And Westfield, which runs the swanky shopping mall in Lower Manhattan’s Fulton Transit Center, has claimed that crime at the retail complex has gotten so bad that it now has no choice but to break its lease (the firm is currently in a nasty legal battle with the Metropolitan Transportation Authority over whether it has the right to put an early end to its 20-year deal).
So to sum up: Retail in the city has bounced back better than almost anyone expected from a pandemic that was supposed to destroy it once and for all. But a much ballyhooed surge in crime has led some retailers to claim they have lost faith in the viability of operating in certain parts of the city. And landlords are finding lots of willing tenants for storefronts in smoke shops—too bad they are operating illegally.
Are you confused yet? Me too. Maybe just go invest in some warehouses.
Eddie Small , 2024-03-19 11:03:04
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