New York is a state of two competing personalities. That split is apparent in everything from politics (progressive in New York City and conservative upstate) to choice of food (low-cal Tasti D-Lite in the fitness-crazed metropolis and frozen custard in Rochester). And the split personality applies to the state's retailing climate. Downstate is packed with affluent, fashion-conscious consumers, while many upstate communities — rural villages and decaying industrial cities — are losing population and economic ground. So, while retailing in New York and its rings of suburbs and exurbs is weathering the economic downturn with relative ease, upstate retail markets are just getting by, reformatting properties to better appeal to the consumers who stayed. One player, meanwhile, is betting that tourist and shopper dollars can change upstate's fortunes.
The City gains ground
New York City is still feeling the effects of the World Trade Center attacks and a steep retrenchment in key businesses, such as financial services. But the overall trends are favorable for retail real estate. For the first time in decades, New York City boasted a population increase from 1990 to 2000. According to the U.S. Census Bureau, the Big Apple's CMSA, which includes suburbs in New Jersey, Connecticut and Pennsylvania, counted almost 21.2 million residents in 2000, an 8.4% increase from 1990 figures; of that total, 8.008 million people lived within New York City's five boroughs, up from 7.322 million in 1990. In Long Island's Nassau and Suffolk counties alone, the population increase equals the total population of the city of Syracuse — about 150,000.
The numbers point to retail opportunity throughout the New York City region, even in the downtown Manhattan area where the 9/11 attacks occurred. The area around Ground Zero is still the third-largest central business district in the nation, teeming with consumers. “We've got 250,000 people working in Lower Manhattan, and 25,000 residents, all who desperately want more retail in the neighborhood, and they're really willing to spend,” says Julie Menin, a former corporate lawyer and restaurateur, and long-time resident of Lower Manhattan, who founded Wall Street Rising. The non-profit group is dedicated to assisting and promoting businesses hurting from the attacks of September 11.
Menin says this is the moment to invest in a lucrative community. The median household income in Lower Manhattan is $125,000, and the median income of all those workers jamming the streets is $87,500. The area also continues to attract tourists. “I think that for many people, there's a wait-and-see approach about the redevelopment,” Menin says. “But there's a narrow window of opportunity in which costs are low, rents are lower, and you've got grants and incentives.”
Investing in downtown retail real estate may still require a leap of faith, however. Although the 427,000-sq.-ft. World Trade Center retail concourse, controlled by Westfield America, was destroyed in the 9/11 terrorist attacks, there was no uptick in traffic for most of the surrounding retail businesses because Lower Manhattan lost approximately 100,000 jobs after 9/11. “A lot of mom-and-pop retailers were seriously impacted by 9/11 and could not hold on long enough to recover,” says Gary Alterman, executive vice president and principal of Newmark New Spectrum Retail. According to a survey that Menin's Wall Street Rising organization conducted in August, retail vacancy stands at 12%, and rents average $58 per sq. ft.
Still, some of the national retailers who would have gravitated to the World Trade Center mall are taking street-level space in the financial district. AnnTaylor, Nine West (which had a shop in the WTC complex) and health club Crunch have all opened new locations and show healthy sales. Alterman predicts that although some awkwardly configured older spaces will be difficult to fill with national retailers, Lower Manhattan will be almost fully tenanted by summer 2003.
In addition to the attractive demographics, the area also offers retailers redevelopment incentives including grants and tax breaks. The Lower Manhattan Development Corporation (LMDC), funded by a $2 billion federal appropriation to the Department of Housing and Urban Development, is now completing passage of programs that will distribute $350 million to retain area businesses and attract new companies.
SoHo stalls, Fifth Avenue soars
While it was spared physical damage in the 9/11 attack, the SoHo neighborhood, a mile to the north, is now Manhattan's most troubled shopping district. According to Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide, SoHo began “to slow down last summer, and post-9/11, they dropped off the map.”
One measure of the crunch is the plunging rents. Before 9/11, they hovered around $400 per sq. ft. Now tenants can get space for a third of that price. “SoHo had depended a greaton tourists” because of its focus on designer apparel and similarly high-end merchandise, says Consolo. But there was also a lot of shopping by “what we call the bridge-and-tunnel crowd,” she adds. “When those people stopped coming from the suburbs, because of access problems, they just never came back.”
In the interim, tourists and suburbanites have shifted their attention toward Manhattan's other luxury retail districts. On Fifth Avenue, “There's no vacancy, and people are still clambering to get space,” says Cushman & Wakefield senior director Susan Kurland.
Case in point: this summer, luxury retailer Boucheron purchased Club Monaco's lease in the St. Regis Hotel at 699 Fifth Avenue for $15 million. Rents on Fifth Avenue's luxury retail corridor have reached a record $1,200 per sq. ft., says Kurland. Madison Avenue, just one block to the east, commands rents of approximately $600 per sq. ft.
Demand is so strong, says Kurland, that the high-end retailers are invading adjoining spaces. “I think the boundaries are growing,” she says. “Traditionally, Fifth Avenue from 49th Street to 57th Street was the hottest area.” Now, the blocks down to 42nd Street are heating up. And, she predicts that high-end retail will spread from East 57th Street to West 57th, thanks to the AOL Time Warner Center at Columbus Circle, a massive mixed-use project being built by developer The Related Cos., based in New York City.
The other major action in retail real estate is happening in Harlem, where gentrification is raising housing prices and median incomes. That is sparking a new Harlem renaissance for retailers that are more familiar with suburban development. Forest City Ratner's Harlem Center, an $80 million mixed-use project completed in conjunction with non-profit Abyssinian Development Corp., has opened on 125th Street and Malcolm X Boulevard. Swedish off-price fashion retailer Hennes & Mauritz and Marshall's recently opened 23,000-sq.-ft. and 57,000-sq.-ft. stores, respectively, there.
David Rosenberg, executive vice president offirm Robert K. Futterman & Associates, says retail development is occurring throughout the neighborhood, not just in the vicinity of Harlem Center, where national retailers favor the large footprints of newer buildings. “The commercial development has really been on all the main thoroughfares, whether it's 125th Street, 116th Street, Broadway, Lenox Avenue or Adam Clayton Powell Boulevard.”
Harlem, which until recently lacked even a modern supermarket, may soon see big-box discounters. Blumenfeld Development Group is planning to convert the crumbling Washburn Wire factory, overlooking the East River between 116th and 119th Streets, to create East River Plaza. The 480,000-sq.-ft. shopping center, which has been in the works since 1998, is expected to include Home Depot, Costco and other big-box tenants.
Big boxes invade the boroughs
The outer boroughs (Brooklyn, Queens, Staten Island and the Bronx) are also getting their big boxes. “You have the sites to accommodate a big box with parking, and you have all-day shoppers in some of these neighborhoods,” notes Consolo. Sometimes there are also unwelcoming neighbors: Community activists recently headed off a proposed Ikea near Brooklyn's Gowanus Canal.
On the other hand, Rosenberg has just finished leasing the 650,000-sq.-ft. Gateway Center in East New York, Brooklyn. It will include the first Brooklyn entry for Target, BJ's Wholesale, Bed, Bath & Beyond and Babies ‘R’ Us.
Another Target first is its occupancy of 120,000 sq. ft. of a 230,000-sq.-ft. retail center in the Bronx being developed by New York-based Kingsbridge Associates. The $80 million development, which is expected to open in spring 2004, replaces six buildings on the site.
Rosenberg claims, however, that other big-box tenants, such as Marshalls, TJ Maxx and Old Navy, have pretty much saturated the outer-borough market. While retailers such as Daffy's and Designer Shoe Warehouse are still searching for space, there's more activity in smaller storefronts where cell phone companies and banks such as Washington Mutual are initiating a lot of activity.
Beyond the big-box venues, other retail developments are under way in the outer boroughs. Santa Monica-based The Macerich Co., for example, is currently expanding Queens Center, a Macy's- and JCPenney-anchored regional mall adjacent to the Long Island Expressway. It is the only major mall in Queens. “The statistics are mind-boggling in that we have over 2 million people in our primary trade area, and we are the only anchored shopping complex,” says Randy Brant, the developer's senior vice president of leasing and development. “Typically, there would be 5-8 anchored shopping complexes within a trade area of 2 million people. We are currently enjoying sales north of $900 per sq. ft. for the small shops.”
Macerich will move JCPenney to an adjacent parcel, and will connect the two sites. The existing department store is being carved up into smaller shop space, and Macerich is targeting tenants of a “middle- to upper-end regional shopping center mix,” Brant says. The project expands Queens Center from 623,876 sq. ft. to about 1 million sq. ft. Completion is slated for fall 2004.
In Flushing, Queens, local firm Flushing Expo is turning a vacant Caldor into a series of specialty stores comprising 45,000 sq. ft. on three floors. William B. May broker Donald William Cheng says this configuration complements Flushing's demographics. “The Asian immigrant population here is used to vertical malls, so we feel that will work to the advantage of the project.”
“Flushing and Queens generally hold a lot of untapped purchasing power that the nationals haven't understood yet,” says Cheng. Gap, Shisedo Cosmetics and Cohen's Fashion Optical have all signed letters of intent for the project, and rents range from $80-$90 per sq. ft. on the ground floor to $30-$50 per sq. ft. on the third floor.
For New York City as a whole, Marcus & Millichap research forecasts a 6.8% total retail vacancy rate and average asking rents of $61 per sq. ft. by year's end. This compares with other big cities such as Chicago (11.5% vacancy and rents at $16.93 for 2002), San Francisco (5.8% and $29.92) and Los Angeles (5.8% and $22.10).
And out in the ‘burbs…
Farther afield, the New York metropolitan area's suburbs remain strong retail markets. There is little land left for greenfield development, but redevelopment and retenanting is under way as owners compete for a growing, increasingly affluent clientele.
In Long Island's Nassau and Suffolk counties, the U.S. Census Bureau reports that between 1990 and 2000 the collective population increased by about 150,000, to more than 2.75 million. Nassau's median household income rose from $54,283 to $72,030, Suffolk's from $49,128 to $65,288, respectively.
Much of the retail real estate activity lately has involved renovating projects and upgrading tenants. That was the motivation behind the two-year-old redevelopment of Mayfair Shopping Center in Commack, says Matt Harding, president of Levin Management, which owns the property. There are some 200,000 people within five miles of the shopping center and the average household income is almost $110,000 within that ring, he says.
Levin renovated the Waldbaum's grocery-anchored center and signed Gap, AnnTaylor, Talbots and other national retailers. These chains, Harding says, are now trying to find more outlets for expansion as the construction of new regional malls has decreased. “The national retailers that we're looking at are trying to get close to their customer, trying to be where their customer shops, make it convenient for the customer to get to the store.”
North of New York City, the story is much the same. In Westchester County, “There's definitely no longer any large parcels for a major retail, regional development,” says Eric S. Goldschmidt, senior partner of Scarsdale-based Goldschmidt & Associates. This lack of availability has propelled conversion projects, such as power center Staples Plaza, located on Route 202 in Yorktown.
In a county of almost 1 million people, with few major malls, community centers are bustling. Ken Bernstein, president and CEO of New York-based Acadia Realty Trust, says the nation's retailing woes have had little negative effect on Crossroads Shopping Center, its 311,000-sq.-ft. project in White Plains. “When Caldor went bankrupt, Kmart paid a significant sum to purchase that lease from Caldor,” he says. “Sales per sq ft. are very strong across the board.” Westchester rents match those strong sales, and Goldschmidt estimates that asking rents for small retailers are currently about $30 per sq. ft., and $10 less for big boxes.
The question now is whether Westchester's financial vigor will be enough to revitalize some of its depressed downtowns. The next test is in White Plains, where the linchpin project is City Center at White Plains, a former Macy's site turned mixed-use development created by Cappelli Enterprises Inc., which purchased the project from New York City-based Tishman Properties in 2001 for $17 million. The $240 million plan includes 395,000 sq. ft. of retail in addition to 600 apartment units and a 15-screen National Amusements movie theater.
Of the 4-level retail space, 300,000 sq. ft. is already leased to Target, Circuit City, Applebee's and others. “White Plains has daytime and nighttime populations of 250,000 and 50,000, respectively,” says Cappelli executive vice president Bruce Berg. “The downtown today, in the evenings, has a tendency to become very quiet. This project is going to bring entertainment and residents to the downtown marketplace.” City Center at White Plains is expected to open in October 2003.
Although downtown Yonkers, a 19th century industrial city, has yet to experience the rebirth that White Plains is expecting, its outlying suburban areas are thriving. Strip centers and big-box developments line Central Avenue, miles from downtown. These are some of the strongest properties in Westchester County. Goldschmidt says that big-box rents along this corridor range in the “mid-to-high $20s” per sq. ft. Best Buy recently took over a Pergament lease there, and Bed Bath & Beyond and electronics retailer P.C. Richard & Son are both constructing stores on vacant lots, despite the cost of preparing sites with steep gradients.
The strength of the New York City metropolitan market has crept northward into the exurbs, including Orange County, west of the Hudson. Building on the success of Chelsea Property Group's Woodbury Common Premium Outlets in Harriman, Bethesda, Md.-based Faison is handling the leasing and project development of Woodbury Centre on behalf of owner Allied Partners. The 228,000-sq.-ft. power center includes a Kohl's department store, Michaels, Staples, Linens ‘N Things and Pizzeria Uno. That the location can support non-tourist retail reflects its residential growth; Faison estimates that the power center's trade area exceeds 216,000 people with a median household income of $65,678.
Upstate New York
Further upstate, New York is a picture of a post-industrial market that's searching for a catalyst to growth. In the 1990s, it didn't happen. The U.S. Census Bureau reports minimal growth or population losses during the past decade in the metropolitan statistical areas of Albany (1.6%), Buffalo (-1.6%) and Syracuse (-1.4%).
Consequently, there hasn't been a great deal of construction in retail real estate, says Tom Savino, an associate broker with CB Richard Ellis' Albany office. “Albany is a funny market, there's not a lot of vacancies. Then again, we don't have a lot of excess properties — for the most part they're build-to-suit situations with an anchor tenant. Our market does not put up speculative retail.” Savino notes that Lowe's and Kohl's are expanding.
But the drug chains have pulled back and Albany has 10 Kmarts within an hour's drive of downtown, only one of which, in Saratoga Springs, has closed. Also, the area lost 11 Ames stores and felt the impact of the shuttering of the Grand Union grocery chain. Jeff Pfeil, president of J.W. Pfeil & Co., predicts that competing grocers won't fill these vacancies, because of the inroads of Wal-Mart Supercenters. Rather, he predicts that deep discounters such as Save-A-Lot stores are more likely to consider retenanting those sites.
Although upstate New York has plenty of greenfield land to develop, the demographics do not support it. Pfeil points instead to the re-mallings that have taken place, as when Mall Properties Inc. converted Northway Mall into a Target-anchored power center in 2000. Similar work is underway at Mohawk Commons, near Schenectady. But he also notes that there has been healthy population growth in Saratoga County, to the state capital's north. New construction is centered near bedroom communities Clifton Park and Saratoga Springs, where quality of life, as well as an influx of small high-tech firms, has attracted emigrés from New York City.
In Buffalo, the state's second largest city, developers are hoping a tech-driven economic rebound will produce new retail opportunities. According to Michael Clark, director of retail services for CB Richard Ellis in Buffalo, “Bioinformatics is the new buzz.” The bioinformatics industry promises to computerize clinical drug testing by using maps of the human genome. In Buffalo, the new industry is getting a $300 million push from both government and corporate funds to create the Buffalo Center of Excellence in Bioinformatics.
The effort includes the construction of three buildings comprising 400,000 sq. ft. at the downtown Buffalo Niagara Medical Campus. Upon completion in 2005, “People, more than ever, will be living in downtown Buffalo — eating in restaurants, enjoying nightlife and shopping,” predicts Doug Sitler, public relations manager of Buffalo Niagara Enterprise, a semi-private organization that promotes regional economic development.
That would reverse a decades-long slide for the Lake Erie port, which continues to lose population. Meantime, Buffalo's popular suburbs are getting most of the development dollars. Locales such as Amherst, Clarence and Hamburg “are showing positive population gains because people are upgrading their residential homes and moving out to the suburbs, and taking advantage of the low interest rates,” says Rex Burgher, vice president of development at Benderson Development Co.
Burgher says that Benderson has continued investing in these towns. In Amherst, for example, the company is finalizing the fourth phase of expanding the 600,000-sq.-ft. Boulevard Consumer Square, which includes anchors Target, Best Buy, Barnes & Noble, Bed Bath & Beyond and other big boxes.
He notes that the 10 million sq. ft. that Benderson owns and manages is now 92% occupied, which is also the average of Buffalo's downtown, regional mall and strip center retail space. Although an 8% vacancy is a good number, it isn't a sign of more development to come. “Buffalo is not a market that sets pace with other mid-size to large markets in the country. It kind of just plods along,” says Clark. Indeed, the Buffalo area has not seen a new regional mall built since 1989.
Upstaging Mall of America?
By far the most ambitious development in upstate New York is slated for Syracuse. There, locally based Pyramid Management Group has proposed expanding its 1.2 million-sq.-ft. Carousel Center, built in 1990 on a cleaned-up industrial site on Lake Onandaga. DestiNY USA, the expanded shopping mall-cum-resort destination, would be larger than the Mall of America in Bloomington, Minn. Pyramid would not comment for this story, but among the ideas floated for the 400-store mega-mall are a 65-acre enclosed park, a replica of the Erie Canal to ferry shoppers around, a 20-screen movie theater, two Broadway-style performance spaces, hotel and conference space, a renewable energy research park and a 25-acre replica of a Mediterranean village surrounding the interior complex.
Pyramid's plans for DestiNY have been a moving target, however. Groundbreaking was originally scheduled for July 2002, but after that date came and went, developer Robert Congel continued to tweak plans for the project. The project is estimated to cost more than $2.2 billion and comprise 15 million sq. ft. In September, Pyramid announced the construction start on a 1,302-room hotel complex that will open in fall 2003.
Amanda Nicholson, an assistant professor in the department of retail management and consumer studies at Syracuse University, says that Pyramid has stressed that DestiNY is only in part a shopping mall, and more a resort destination. DestiNY will also serve as a platform for other tourist activities in New York: it will house the 100,000-sq.-ft. headquarters for the Upstate New York Tourism Council (an organization that Governor Pataki signed into law on October 31, 2001, and whose expenses will be paid by Pyramid's tax revenues).
Can this ambitious project pay off? Nicholson says it might. “Where the mall is located, off the interstate and Thruway, it has the possibility of attracting people from fairly long, overland distances,” she says — stressing the word “overland,” because Syracuse's airport is international in name only. “Also, this is not a metropolitan hotspot,” she says. “So you have a local draw; the Carousel attracts quite a few people now from Pennsylvania, for example. The third factor is weather. During long dark winters, people will flock to a nearby resort.” But, she points out, “We haven't heard about any retail stores that have signed on the dotted line, not of any significance anyway. No Macy's, no Bloomie's, no Nordstrom, no Saks — these are stores that would be obvious additions as plans went ahead. And you need those three years out.”
Still, if they build it, the shoppers will come, says Ted Potrikas, senior vice president of the Albany-based Retail Council of New York State. “At first it might strike us non-shoppers as being over the top,” he says “But I think that people have proven time and again that they will drive, will travel, to some place that's new, that's different, or that's so colossally huge that you've got to see it to believe it.”
Indeed, Potrikas estimates that the trade area for Albany's two super-regional malls — the Cross Gates Mall and Colonie Center — reaches as far as 100 miles, so why wouldn't something of DestiNY's scope allure shoppers from as far away as Albany? On the other hand, Clark isn't convinced that consumers from Buffalo will take the 150-mile drive, unless there are extraordinary bargains. “The mentality in the Buffalo market is really price-conscious,” he says. “I don't think you're going to see the typical Buffalo consumer making frequent trips to DestiNY.”
According to Larry Socia, head of the retail division for Pyramid Brokerage Company (unrelated to Pyramid Management), from the tenants' perspective, DestiNY's tentativeness “has been a big pain in the ass for us brokers. Retailers are saying, ‘We're not going to make any commitments for coming into the market, or expanding into the market.’ The Circuit Cities, the guys who haven't been in here yet, are holding out. And some are getting tired of it, some of them have started of thinking of a new place.”
Among the retailers that have grown tired of waiting for DestiNY to manifest itelf is Babies ‘R’ Us, which built a 40,000-sq.-ft. freestanding store on the edge of the Carousel Center site.
Looking ahead, Nicholson nevertheless cites a history lesson. “Carousel Center was industrial land between Ondondoga Lake and Syracuse. They're spending a fortune trying to clean it up, and this land had some major problems. The contrast is really stunning. These guys have shown they can make it work.”
Bloomie's: A boon for SoHo?
SoHo is Manhattan's most troubled shopping district, but a new six-level Bloomingdale's could boost area traffic and rents.
Cincinatti-based Federated Department Stores recently announced plans to open its second New York Bloomingdale's store by fall 2003. The 124,000-sq.-ft. store will be located at 504 Broadway between Spring and Broome Streets — in the former Canal Jeans building. Remodeling efforts are scheduled to begin next spring.
“We are excited about extending the Bloomingdale's brand to a second location in New York City,” says Michael Gould, chairman and CEO of the company. “SoHo is a premiere downtown location and the community surrounding the area is such a vital part of New York.”