To many people who live west of the Hudson, New York means one thing: Manhattan. New York shopping is Bloomingdale's, Macy's, Fifth Avenue and Madison Avenue, not to mention the countless boutiques on streets throughout the borough.
But to an increasing number of retailers and developers, the four other boroughs mean business. With Manhattan retail space shrinking and borough demographics improving, many retailers and real estate owners are looking for properties closer to borough residents' homes, saving them a trip across a bridge or through a tunnel to shop. The numbers are appealing:
Brooklyn, the Bronx, Queens and Staten Island are home to 6.5 million people, about 80 percent of New York City's population.
The population of Queens is larger that of 17 states.
There are more college students in Brooklyn than in Cambridge, Mass.
“In the boroughs, you've got a slew of investors that would buy any property, if it's good,” says David Rosenberg, a broker at Robert K. Futterman & Associates. “They look at rentability, parking and what kind of return they can get.”
Retailers who ignore the boroughs do so at their peril. Rents are cheaper in the boroughs, so retailers can have bigger spaces than in Manhattan. The ever-popular Target figured that out, opening one store in Brooklyn and two in Queens while it waits for the rightin Manhattan. And Ikea has chosen the Red Hook section of Brooklyn for its first New York store.
Since January 2003, unemployment rates declined slightly to an average 8.75 percent in the boroughs from 9.05 percent, while manufacturing activity steadily increased, creating more jobs to support several new retail developments, which will bring more tax dollars to the area. “The boroughs are thriving because they are so under-stored,” says Chris Conlon, a broker at Ripco Real Estate. “In comparison, if you look at department stores per capita on Long Island, there might be one mall for every 50,000 people. In the boroughs, it's more like one for every 300,000 people.”
Developers in the boroughs are a mixture of grassroots family investors such as Queens-based MussCo. and Triangle Equities and national firms such as Forest City Ratner Co. that focus on urban markets.
Average cap rates are hard to pin down, leasing agents say. They cite transactions with cap rates of 6 percent to 12 percent, depending on the condition of the property and the retail market.
Much of the action is in Brooklyn, with 2.5 million residents (or 30 percent of the city's population) and the best transportation system outside Manhattan. With former Manhattanites paying as much as $1.5 million for townhouses, the stakes for retailers have gotten higher, though rents are still relatively low. Overall, Brooklyn retail rents range from $35 per square foot to $135 a square foot, adds Conlon.
Consider this: Brooklynites have $1.7 billion in disposable income to spend. “That speaks to us,” says Joseph Sitt, chairman and CEO of Thor Equities. The company, which bought Albee Square Mall from Forest City Ratner in 2001, is renovating the property into the Gallery at Fulton Street, which will include trendy apparel stores, such as Forever 21, a hotel and offices that will span 1.4 million square feet. Sitt's plan is to install mosaic tiling, porcelain floors, skylights and glass railings that will give the interior an upscale look, uncommon on this side of the East River.
Another Forest City-owned property across the street is more controversial. Local politicians who decry the tax dollars spent on the project recently claimed that its vacant space is not being leased to retailers, as promised, but is earmarked for government offices. Forest City demurs: “The space is now being redone for Burlington Coat Factory. It is not vacant,” says Joyce Baumgarten, a spokesperson for the developer.
Whole Foods is coming to the borough, opening a 46,000-square-foot store; Linens N Things and Lowe's are also under. Target will open a 194,000-square-foot, two-level anchor next year at Forest City Ratner's planned Atlantic Terminal.
Related Retail Cos. recently opened Gateway Center, a 640,000-square-foot power center in the East New York section of Brooklyn. “The city was a big part of the master planning to rebuild this area for over 10 years,” says Glenn Goldstein, vice president of Related Retail, which partnered with Blackacre Capital Management on the project. “We were only involved with the project for 18 months.” The $192 million complex, which opened last fall, features Home Depot, BJ's Wholesale Club and Bed Bath & Beyond.
The time-honored Manhattan trend of renaming a rundown neighborhood to spur gentrification has reached Brooklyn. A former industrial neighborhood just across the river from downtown Manhattan is now called DUMBO (Down Under the Manhattan Bridge Overpass). The revived district's renovated million-dollar loft condominiums and artsy crowd have attracted upscale home furnishing stores. For example, Manhattan furniture icon ABC Carpet & Home built a 40,000-square-foot store and Pottery Barn catalog offshoot West Elm opened its first store in November. The neighborhood's rejuvenation is mainly due to a 1997 zoning change that allowed developers to build residential properties in the area.
In Queens, multi-culturalism is more evident than anywhere else in a city known for diversity. Communities with strong ethnic identities make up the population of 2.2 million, with a median household income of $42,439. The borough's retail vacancy rate is currently 0.4 percent, with The Macerich Co.'s Queens Center and Simon Property Group's Roosevelt Field in nearby Garden City, Long Island, attracting the lion's share of national tenants. Major brands such as American Eagle Outfitters and Williams-Sonoma, seeking to capitalize on Astoria's growing population of trendy young people, are searching for sites in the neighborhood, where retail rents range from $17 to $100 per square foot, says Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, a Manhattan-basedfirm.
The biggest twist in New York City retailing is set to occur in 2005, when Queens becomes home to the city's first lifestyle center. Atco Properties & Management is developing The Shops at Atlas Park on 12 acres. “This project is going to capture the dollars that are going to neighboring Long Island,” says Consolo. “This will bring the customers back from Roosevelt Field.” No tenants have been named, and not everyone is as optimistic about the project's success. “It's a grandiose plan,” says Futterman's Rosenberg. “Given the traffic and the market, it'll be very hard to pull it off.”
But, the developers argue that its uniqueness will attract shoppers that might otherwise have left the borough. “This project would be relatively standard if it were located in Florida, but I think this market is still very much untapped,” says Damon Hemmerdinger, development director of Atco.
Retailers are finding that the Bronx is more than a wasteland of abandoned buildings, as it is often depicted in films and on television. “I think it's gotten too much bad press over the years,” says Allen Cooperman, a partner at the Cooperman Co., a development and leasing firm. The borough has 1.3 million people and a 4.5 percent retail vacancy rate. Only 22 percent own their own homes, and the median household income is a citywide low of $27,611. But, he adds, Bronx shoppers are “looking for the same things and want the same consumer quality” as others. And because of disappearing retail space in Brooklyn and Queens, the Bronx may finally get its due.
Smaller strip centers dominate, with established malls such as The Shops at Bruckner Boulevard and the Mall at Bay Plaza, keeping dwellers in the borough to shop and dine. Retail rents range from $50 to $70 per square foot in the desirable locations.
Target will make its Bronx debut in the spring, with a 120,000-square-foot anchor spot at River Plaza, an $80 million mixed-use development owned by New York-based Kingsbridge Associates. Another anticipated project is the Fulton Fish Market — New York's fish processing center that is moving uptown from Manhattan. The new market will open on a 30-acre area in once-blighted Hunts Point, paving the way for retail and entertainment development.
“The Bronx is going to realize quite an up-tick within the next few years,” says Conlon, whose company renovated the 115,000-square-foot Bruckner Mall five years ago. Up to now many traveled north to wealthy Westchester County to shop at national chain stores.
Of all the boroughs, Staten Island is the closest to a typical American suburb, with single-family homes and strip centers with parking lots. Staten Island's 6.2 percent retail vacancy rate means there's plenty of space for retailers. But its isolation discourages investment. The southern-most borough, minutes away from New Jersey and accessible from Manhattan mainly by the infamous ferry, has a population of less than a half million. More than 50 percent of the residents own private houses, and the median household income of $42,935.
“The economy here is really great,” says J. Delbert Smith, president and CEO of Staten Island-based real estate firm J. Delbert Smith Associates. “There's a microcosm of successful stores and businesses.”
But it's not as attractive as its sister boroughs, apparently. “Staten Island appears to be G.U. — Geographically Unsuitable — for some of the bigger stores,” says Consolo, who adds that Ikea nixed a plan to build there. Smith blames zoning laws, which restrict commercial space to 11 percent of the total.
Neighborhood centers averaging about 100,000 square feet are the most prevalent form of retail space. Staten Island Mall, the only mall, is always busy with locals who don't want to travel and attracts most of the national retailers. Smaller centers including Forest Avenue Commons, Heartland Village and Hylan Boulevard, near the Verrazano-Narrows Bridge, are also desired retail spots, where rents range from $24 to $50 per square foot.
Construction recently began on the Bricktown Center at Charleston, a 412,000-square-feet retail center in southern Staten Island. The $65-million project is part of a 22-acre development, Charleston Park. The project is expected to have a senior housing community, a school and green space and bring about 1,100 permanent jobs to the borough.
Retailers who corner New York's outer boroughs have the added advantage of marketing to both residents and tourists, who are staying with friends or relatives who live outside Manhattan.
Market Profile/ The Outer Boroughs
Total Population: 1.3 million
Unemployment Rate: 10.7%
Per Capita Household Income: $13,959
Median Home Price: $190,000
Median Household Income: $27,611
Total Population: 2.2 million
Unemployment Rate: 6.8%
Per Capita Household Income: $19,222
Median Home Price: $212,600
Median Household Income: $42,439
Total Population: 2.5 million
Unemployment Rate: 9.2%
Per Capita Household Income: $16,775
Median Home Price: $224,100
Median Household Income: $32,135
Total Population: 450,153
Unemployment Rate: 7.0%
Per Capita Household Income: $23,905
Median Home Price: $209,100
Median Household Income: $55,039