The National Bureau of Economic Research officially declared on Monday what most pros in the retail real estate industry had already come to accept—that the United States economy has dipped into a recession. How long and deep the recession will be is still an open question. However, most experts think the U.S. is looking at its worst recession since at least the early 1980s, if not since the Great Depression.
New York City itself—home to many of the financial institutions that are failing, merging or being bailed out by the federal government—is feeling the pains of the economic contraction and the prolonged credit crunch that emerged after the popping of the massive housing bubble.
It is in this context that industry pros will gather in New York City next Monday through Wednesday for ICSC’s second largest event of the year—the New York National Conference & Dealmaking. Retail Traffic talked with three pros in the city about the outlook on how the developing trends will affect the Manhattan retail market for retailers and landlords. Andrew Goldberg is executive vice president with the New York tri-state region retail services team of CB Richard Ellis. Karen Bellantoni is executive vice president with New York City-basedfirm Robert K. Futterman & Associates. Brad Mendelson is executive director with Cushman & Wakefield in New York.
Retail Traffic: Have you seen any change in retail foot traffic in New York City in the past several months as a result of the recession?
Goldberg: During September and especially October, there was not much buying going on. What that did was cause a lot of retailers to have a lot of extra inventory going into November. So [many of them] are hitting discounts much earlier this year, so I think you saw a shoot-up in buying in the last week before Thanksgiving. But in September and October, everybody was holding onto their money.
Mendelson: The areas we are working in are Fifth Avenue and Times Square and we haven’t seen [a drop off] and I am not sure there has been a diminution in traffic on 34th Street or in the primary markets of Soho. The people are still here, [maybe] they are finishing up vacations they paid for a long time ago, but we haven’t seen a huge diminution in traffic.
Bellantoni: I am seeing considerable traffic on the sidewalks, which is a case to me that there are still plenty of tourists coming to New York. But I am seeing fewer bags. And Fifth Avenue is still incredibly busy with people.
RT: What kind of holiday season do you think we will see here?
Bellantoni: We’ve heard that business is off. Everything is indicating that the [holiday] sales performance is going to be less than last year.
Goldberg: A lot of the sales that will happen will be at much greater discounts than in years past. Everybody is very leery about having merchandise left on the floor.
Mendelson: We work on a rolling 12 months [basis], from November to October, and we are not seeing a diminution in sales, there has still been growth and it’s projected to be positive growth for the rest of the year, but it may be in the teens instead of the 20s.
RT: Are you seeing tenants become bolder about negotiating lower rents or getting perks from New York landlords?
Mendelson: Certainly in secondary markets, I don’t think tenants are negotiating harder, but they are standing by the sidelines, waiting to see where things go. I know a number of landlords who are prepared to give additional incentives for tenants to take space. There has been a willingness to listen more than there has been in the past. And in your primary markets there is not enough available space to really look at.
Goldberg: Yes. There is more negotiation going on than there was in years past. Now, you can have landlords doing work for a tenant or giving a tenant an allowance. There weren’t many retailers who got [that] before.
Bellantoni: We are seeing people put plans on hold for the next several months as they evaluate their sales performance. But it’s not happening as much in New York as it’s happening across the country.
RT: Which neighborhoods are still performing well and which are starting to soften?
Goldberg: I think the best markets in the city, the proven markets—Fifth Avenue, Midtown, Madison Avenue, the heart of the Upper East Side—are still strong. The secondary markets are being hit much harder. And the downtown financial district got hit hard.
Bellantoni: We are certainly not seeing a slowdown in Soho, or on Fifth Avenue, because there is not a lot of available space. And Times Square is continuing to be strong, Union Square, areas near Herald Square. The neighborhood where there is some movement is on Madison Avenue above 57th Street.
And we are starting to see some corrections a little bit in some of the Upper East Side and Upper West Side neighborhoods.
RT: Are you working on any large transactions right now?
Mendelson: We are working on a few. We have an agency on 666 Fifth Avenue and we are actively in discussion with half a dozen retailers. Everybody just wants to make sure that the decision they are making is the right one. When you talk about Fifth Avenue, it’s a branding opportunity. We put the Brooks Brothers space on the market and we leased half of the ground floor to the Abercrombie & Fitch’ kids division. What we have is the remainder of the Brooks Brothers space—approximately 5,000 square feet on the ground and 7,000 square feet on the second floor.
Bellantoni: I have someI am still negotiating and hoping to close prior to the end of the year. One of the deals I am working on would be the retailer’s first location in New York. It’s a pretty good sized deal.
Goldberg: We are as well. There are still a couple of deals we’ve been working on that are moving forward. Most of the ones that are happening right now are tenants that already have stores in the city that were able to negotiate a good deal they might not have been able to a year ago. And there are still tenants coming in from other countries where these would be their first or second store in New York.
RT: What kind of a mood do you expect going into the ICSC New York show?
Goldberg: You are going to see landlords ready to move quickly on deals and tenants being much more selective. I don’t think deals are going to get signed at the conference, but that’s no different from years past.
Mendelson: We are going to see a very somber mood. The ICSC is an organization of shopping centers and I don’t think there is a lot of shopping center expansion. The sales numbers are down substantially. There are a number of people who won’t be coming to New York City this year because of the cost. A number of companies that used to entertain won’t because corporate expenses are being cut.
Bellantoni: It’s going to be a tough environment for many. There will still be deals made in New York and hopefully, not much re-trading. If nothing else, just getting together and sharing stories will help people as well. And that is the other point of the conference—to see some familiar faces.