Since Audrey Hepburn frolicked in the 1961 movie “Breakfast at Tiffany's,” the upscale jeweler has had only one Manhattan location. That is about to change. In the fall of 2007, Tiffany & Co. will open a 7,600 sq. ft. store at 37 Wall Street, around the corner from the New York Stock Exchange.
For the jeweler and the Lower Manhattan district, the opening will signify a major advance. “Luxury stores and national chains are moving into Lower Manhattan around Wall Street,” says Faith Hope Consolo, a 20-year brokerage veteran and chairman of retail leasing for Prudential Douglas Elliman Real Estate.
Besides Tiffany, other retailers that have signed leases in Lower Manhattan include bookstore giant Barnes & Noble as well as Hermes, the French maker of luxury jewelry and other accessories. Whole Foods Market, the organic grocer, is scheduled to open a 55,000 sq. ft. supermarket at 101 Warren Street several blocks north of Wall Street in the spring of 2007. High-end businesses that have already opened include men's clothier Hickey Freeman and a BMW dealership.
The arrival of national brands has surprised even veteran brokers. “There is a very different mix of tenants than anyone would have anticipated a few years ago,” says Robin Abrams, executive vice president of Lansco Corp., a tenant broker.
For decades, the financial district's canyons were home to stockbrokers, investment banks and law firms. Most of the limited retail space was occupied by such modest operations as sandwich shops and discount photo stores.
But in recent years, financial firms have been leaving outdated Wall Street offices and heading for new buildings in Midtown. Former office space is being converted to condos and retail space designed for sizable stores.
The arrival of the chains is pushing rents up as high as $300 per sq. ft. That is more than double the figure of five years ago. Even at the higher rents, many brokers figure that the costs are a bargain compared with tony sections of Manhattan, such as Madison Avenue, where rents can top $1,000 per sq. ft.
“It's a brilliant move for BMW and the other luxury brands to locate near Wall Street,” says Alan Napack, senior director of broker Cushman & Wakefield. “Guys will walk out of their offices with big bonus checks, and they will go on a shopping spree.”
The upscale activity is focused on the main streets, including Broadway, Broad Street — home of the New York Stock Exchange — Wall Street, and Water Street. National chains only want to look at these prime sites.
Rents on more quiet side streets, such as Maiden Lane, remain below $100 per sq. ft. Such cheaper locations are providing an opportunity for local stores and restaurants to gain a foothold in a fast-growing market.
The revival in Lower Manhattan is a big reversal from the difficult days after 9-11. When the World Trade Center collapsed in 2001, much was lost, including 500,000 sq. ft. of retail space. The towers housed one of the busiest shopping malls in the country with gross sales nearing $1,000 per sq. ft. The roughly 80 tenants in the subterranean mall complex included national chains, such as Ann Taylor, Gap, and Borders.
After the disaster, the retail market froze throughout Lower Manhattan. With thousands of office workers gone, sales fell at the surviving stores and restaurants.
Long-time retailers in the area struggled to hold on, while few stores inquired about locating along streets that in some cases were covered with mud from the construction project at Ground Zero.
Some former tenants of the World Trade Center were reluctant to open new stores because of insurance considerations, recalls Elizabeth Obloy, managing director of brokerage Studley. Insurance policies covered a pre-determined percentage of future expected store profits.
But under the policies, the insurance payments would stop as soon as the stores were rebuilt. “The insurance was part of the reason a lot of national chains did not move right away to open replacement stores,” says Obloy.
Signs of revival
Then gradually activity began to increase. In October 2002, GAP, which had one of its most successful stores in the World Trade Center, opened an outlet in the nearby World Financial Center, a 1.6 million sq. ft. building that was damaged but remained intact. Sephora, a beauty products chain that also thrived in the towers, acted as a pioneer, opening a store at 150 Broadway. “When Sephora opened, we cheered because it was one of the first national chains to locate in that area,” says Eric Deutsch, president of the Alliance for Downtown New York.
According to Deutsch, the new stores are thriving, and many retailers from around the world are inquiring about opening in the area. But some developers are still waiting until construction is complete on the site of the destroyed twin towers. Plans call for a ground-level mall that would replace the retail space lost at the World Trade Center.
Would the new mall steal business from existing stores? Brokers aren't sure. In any case, Silverstein Properties, the developer of Ground Zero, says that its Freedom Tower won't be completed until 2011. “The retail environment downtown will remain healthy for at least the next year or two,” says Robert Futterman, chairman and CEO of Robert K. Futterman, a New York broker specializing in retailing. “You will see more restaurants and mainstream retailers moving in.”
Retailers could see more competition from the South Street Seaport, a 285,000 sq. ft. center for shopping and restaurants located on the East River on the other side of the island from Ground Zero. In 2004, General Growth Properties acquired Rouse Co., which owned the seaport mall. General Growth is an aggressive REIT that has a reputation for boosting the performance of its acquisitions.
Condos generate customers
Part of the reason for the revival of retailing in Lower Manhattan can be traced to the arrival of new residents after 9-11. With apartment rents sagging in Lower Manhattan, young professionals scouted for deals. Budget-minded tenants quickly filled vacancies. Then developers began converting outdated office buildings into condos, including luxury units. The area's residential population climbed from 22,000 in 2000 to 33,100 in 2004, a 50% increase, according to the Alliance for Downtown New York. By 2007, more than 40,000 people are projected to be residing in 24,000 apartment units.
One of the high-profile luxury condo conversions is at 55 Wall Street, a historical Beaux-Arts office building that is being christened the Cipriani Club Residences. Celebrity tenants will include actors Bruce Willis and Naomi Watts, says Obloy. “This is becoming a 24-hour community, not just a place that closes at 6 p.m.,” she says.
The new stores typically locate on the ground floors of condos or offices. In densely packed Lower Manhattan, there is no room for big-box outlets or properties built exclusively for retail. When Bed Bath & Beyond recently signed on as a tenant at 101 Warren Street, the chain agreed to occupy 33,500 sq. ft. on the first two floors of a complex of more than 1 million sq. ft. Most of the rest of the 35-story structure will be taken by 391 apartments and condos, including some that sell for $12 million.
Besides the few Hollywood stars, most of the new residents work in financial services or other high-paying fields. The average household income in Lower Manhattan is $153,000, according to the Alliance for Downtown New York.
Many of these residents are families with children, and the neighborhood is changing to accommodate their needs. Claremont Preparatory School, the area's first private school, recently opened its doors, charging an annual tuition of $26,500, comparable to the fees at other exclusive Manhattan schools.
To serve the deep-pocketed residents and Wall Streeters, white table-cloth restaurants have been opening, including Midtown fixtures such as Bobby Van's Steakhouse and P.J. Clarke's. A major cluster of bars and restaurants has opened around Hanover Square, which is known as a center for offices and new condos. “There is a growing constituency for fine dining,” observes broker Consolo with Prudential Douglas Elliman. The Wall Streeters like fine wine and good steakhouses, she adds.
While affluent new residents to the area have provided customers for retailers, office workers have continued to play a role. After hitting a high of 13.7% in 2003, the office vacancy rate in Lower Manhattan has steadily declined to 11.2% in the second quarter of 2006, according to CB Richard Ellis.
Many of the offices have been filled by companies gobbling up their own excess space. In the first half of the year, more than 1.2 million sq. ft. of space was absorbed by companies, such as JP Morgan Chase, Merrill Lynch, and TD Waterhouse, reports CB Richard Ellis.
Serving the tourist trade
Besides local customers, downtown merchants are benefiting from a flood of tourists. The number of tourists visiting Lower Manhattan in 2005 reached 4.5 million, up from 3.5 million in 2002. Hotel occupancy in Lower Manhattan climbed from 69.3% in 2002 to 89.2% in the second quarter of 2006, according to the Alliance for Downtown.
Besides buying souvenirs and meals, the tourists pause for some downtown shopping at clothing outlets, such as Brooks Brothers and Rochester Big and Tall, a men's store.
“The World Trade Center site on Broadway is packed seven days a week with tourists who want to see what happened,” says Alan Napack of Cushman & Wakefield.
To make the tourists feel welcome, the city has built nine public parks and open spaces totaling 3.2 acres. Sidewalk cafes and restaurants are sprouting along some of the inviting spots. “When you see the new shops and cafes, you feel like you are in Europe,” says Loren Baron, vice president of broker CB Richard Ellis.
The tourists are not the only out-of-towners that have provided an economic boost. The retail market also got a lift from considerable government assistance, including part of the $20 billion aid package that President Bush pledged shortly after 9-11.
Under the recovery program, local stores received grants and low-interest loans. The cash helped struggling stores hold on until better times returned. The city offered property tax abatements lasting up to five years. In some cases, the tax aid reduced rent for retailers by as much as $5 per sq. ft.
Getting trains back on track
Perhaps even more important than the direct aid, the city set to work at renovating the damaged transportation system. After the terror attacks, many subway lines to downtown Manhattan shut down. The Port Authority Trans-Hudson trains, which carry 45,000 commuters daily from New Jersey, also closed.
Within a year, the commuter trains were restored and the subways had reopened. Before 9-11, subway ridership in Lower Manhattan peaked at about 265,000 passengers a day.
Since 2003, ridership has climbed steadily, hitting 296,000 in 2005, according to New York City Transit. The impact of rising ridership quickly became apparent. More shoppers began flooding to the area.
Two long-time fixtures of lower Manhattan — Century 21, a discount department store, and J&R, an electronics megastore — suffered damage on 9-11. Both stores completed repairs, and after subway service resumed, business began returning. Today both stores report strong sales as customers from around the city come to find bargains.
Throughout the reconstruction, the city's plan has been to use the federal money as a way to finance a major improvement of transportation links for Lower Manhattan. Work continues on the Fulton Transit Center. When completed in 2008, the transit center will make it easy for passengers to switch between the 12 subway lines that pass under Lower Manhattan.
Stores will also get a boost from the recently completed $130 million renovation of the Staten Island Ferry, which transports 65,000 daily commuters. For years, the ferry terminal and the area around it have been shabby venues that housed hot dog and souvenir vendors. The renovated facility will provide a tasteful environment that should attract more stores, says Futterman of broker Robert K. Futterman. “As soon as you get off the ferry, you will start to see a new downtown,” he says. “The area will include a strong mix of retailers operating day and night.”
Stan Luxenberg is a New York-based writer.
BUSINESS RELOCATIONS TO LOWER MANHATTAN
Since the beginning of 2005, at least 72 companies have committed to relocate their businesses from elsewhere in the metropolitan region to Lower Manhattan, accounting for over 1.5 million sq. ft. of new leases.
|Sq. Ft.||Address||Prior Location|
|Aon||220,000||199 Water St.||Midtown|
|Bowne & Co. Inc.||203,668||55 Water St.||Hudson Square|
|Association for the Help of Retarded Children||136,000||83 Maiden Lane||Midtown South|
|McKee Nelson LLP||73,613||1 Battery Park Plaza||Midtown|
|Empire Blue Cross Blue Shield||52,600||1 Liberty Plaza||Midtown|
|BearingPoint||52,000||3 World Financial Center||Midtown|
|Center for Worker Education||43,785||25 Broadway||Hudson Square|
|Kaplan K12 Learning Services||43,194||1 Liberty Plaza||Midtown|
|Crossborder Solutions||42,125||1 New York Plaza||Midtown South|
|Learning Tree||41,724||1 New York Plaza||Midtown|
|New York Academy of Sciences||40,000||7 World Trade Center||Midtown|
|Mansueto Ventures LLC||40,000||7 World Trade Center||Midtown|