For decades, Manhattan's Financial District held zero cachet as a shopping destination. Its crooked street grid, which bears little in common with the uniform retail corridors of Madison Avenue and Fifth Avenue, didn't help. Manhattan's southernmost tip also became a ghost town every weekend.
But over the past six years, Lower Manhattan has undergone a dramatic transformation. As both locals and tourists alike continue to flock to the downtown area, blue-chip retailers are following them into the nation's third largest business district.
Here are some recent examples:
In June, luxury retailer Hermes opened a 4,000 sq. ft. store at 15 Broad Street. The former office tower was converted into a mixed-use retail, office and condominium property in 2005. The starting price for condo units is $1.5 million.
British shirt-maker Thomas Pink opened a 3,000 sq. ft. store at 63 Wall Street just blocks away from the New York Stock Exchange in July.
In October, jeweler Tiffany & Co. opened its second Manhattan store at 37 Wall Street. The 25-story building housing Tiffany & Co. was converted into a residential property in 2005.
Larger shifts in the residential population are behind this trend. The Alliance for Downtown New York reports that 26,900 people lived south of Chambers Street in early 2001. That total has jumped by 66% over the past six years — 44,700 people lived in Lower Manhattan at the end of July. More residents are expected through the end of 2008, which should help attract new retailers to the area.
“Retailers were always reluctant to open stores in Lower Manhattan because it wasn't viewed as a 24/7 neighborhood,” says Michael Forrest, a local broker with real estate services firm Marcus & Millichap. “Now many of the people who work here also live here.”
Given this growing residential profile, the Financial District is evolving into a 24/7 mixed-use district. That concept would have seemed unimaginable just 10 years ago when Lower Manhattan businesses were totally reliant on office workers.
This influx of residents and tourists also explains why a new generation of retailers is tapping Lower Manhattan's Financial District. Another enabling factor that has attracted the luxury shops is thousands of office workers, who still vastly outnumber local residents.
Roughly 310,000 white-collar workers occupy Lower Manhattan during the week. By 2012, that total should exceed 356,000.
“Many of the nation's highest-paid office workers are in Lower Manhattan,” says Ed Hogan, national director of retail at Brookfield Properties. The publicly traded company based in New York owns six Lower Manhattan office buildings, among them the hulking 8 million sq. ft. World Financial Center complex located along the Hudson River.
The World Financial Center sustained major damage on 9/11 when the South Tower of the World Trade Center nearly flattened the complex.
But the World Financial Center has rebounded in a big way since 9/11. Office occupancy today stands at 95%. The same goes for the retail space in the complex. The glass-domed Winter Garden that straddles the World Financial Center currently houses roughly 180,000 sq. ft. of retail and restaurant space, only 3% of which was vacant as of late November, says Hogan of Brookfield Properties.
More retail space may be added to the Winter Garden, too. Future expansions could potentially raise the amount of retail space in the World Financial Center to 300,000 sq. ft.
“We have really seen an increased traffic flow through the property over the past few years, and I think that many retailers have finally realized that this was an underserved market for a long time,” adds Hogan.
The median household income for downtown residents reached $162,700 in mid-2007, nearly three times higher than the median household income for the rest of Manhattan. These favorable demographics gave Hermes and Tiffany & Co. the confidence to establish beachheads in Lower Manhattan.
Residential developers also are setting the stage for more population growth. In late November, more than 15 luxury residential developments were under construction in Lower Manhattan below Houston Street. Nearly one-third of those projects were being developed south of Chambers Street in the Financial District.
“When the [residential] conversions began to pick up after 9/11, a lot of retailers quickly realized that the people buying these units were very wealthy,” says Forrest of Marcus & Millichap.
The conversion of older office buildings into swanky condo units has accelerated in recent years. One reason is that after 9/11, the government offered many developers Liberty Bond financing that made it attractive to either build new rental properties or convert Class-B office properties into residential buildings.
In 2002, the federal government offered $8 billion in Liberty Bond financing to developers working on Lower Manhattan projects. Of that total, $1.6 billion was earmarked for new downtown residential projects.
Older hotel properties in Lower Manhattan also were converted into condominium units. Professional services firm PricewaterhouseCoopers reports that some 3,700 hotel units were turned into residential condominium units between 1999 and the end of 2006.
An affluent and growing population base clearly makes retailers happy. Lower retail rents are also attractive. Unlike the posh Fifth Avenue corridor directly below Central Park where retail asking rents averaged $1,400 per sq. ft. last year, downtown retail rents ranged from $60 per sq. ft. to $225 per sq. ft.
Although retail rents are far cheaper in Lower Manhattan than in Midtown, the pricing gap between the two is closing. The downtown retail market posted the second largest average asking rent increase per square foot between the end of March 2006 and 2007, according to the Real Estate Board of New York.
Average asking rents for the area below 14th Street increased by 9% during that period, second to only the upper Manhattan district where rents increased by 18%. The Real Estate Board defines upper Manhattan as most neighborhoods north of 97th street.
Downtown's lower average rents also help minimize the risk of making the move downtown for retailers such as Hermes and Tiffany & Co.
“Hermes and Tiffany & Co. had to look beyond the residential market in Lower Manhattan,” says Nicole LaRusso, vice president for planning and economic development at the Downtown Alliance. “You're talking about an area that is already full of tourists.”
Roughly 5.8 million tourists visited Lower Manhattan in 2006, and that total is expected to double by 2012 when the World Trade Center Museum and Memorial is scheduled for completion.
Foreign tourists also are spending their money in Lower Manhattan for less obvious reasons. LaRusso says that the unfinished World Trade Center site still lures hordes of tourists every day. “But I hear that many visitors don't really know what to do with themselves after they've seen the site,” LaRusso says. “So many of them are hitting the stores.”
Once the transit hub and World Trade Center memorial are completed, both shopping and sightseeing options should multiply.
Two major transit hubs are under development. By 2010, the $888 million Fulton Street Transit Center will connect 12 subway lines. Transit officials expect nearly half a million people to access the station every day, and that in turn should buoy demand for added retail and residential developments east of Ground Zero.
Ditto for Ground Zero. When the $2.1 billion transit hub at Ground Zero is finished in 2012, roughly 450,000 people will travel through it every day. They will also pass roughly 500,000 sq. ft. of retail space. While it's unclear just how that retail space will be configured, Australian-based Westfield Group has the “right of first offer” on any new retail development.
Westfield would likely jump at the chance to control this space. Before the 9/11 attacks, the retail space located in the World Trade Center mall grossed roughly $900 per sq. ft., or more than three times the national average for mall space, according to the Downtown Alliance.
“One great thing about Lower Manhattan is that all of the tourist and shopping sites are close to each other,” says LaRusso of the Downtown Alliance. “So once the new train stations are done, the number of people moving around this area will really go up.”
Parke Chapman is senior associate editor.
Big demand for grocers to fill retail gap
It's hard to deny that Lower Manhattan's retail infrastructure has vastly improved since the 9/11 attacks put the entire district's future in jeopardy. While the driving force behind this upgraded retail market is a growing residential population, basic shopping needs have largely gone unfulfilled.
Jewelry and fine clothing stores enjoy a strong presence, but finding a decent supermarket remains challenging for the upscale population in many pockets of the market, according to retail broker Michael Stone, senior director at Cushman & Wakefield's downtown office.
That may also explain why online grocer Fresh Direct is extremely popular among Lower Manhattan residents, according to Nicole LaRusso of the Alliance for Downtown New York. Fresh Direct enables customers to buy their groceries online and have them delivered directly to their apartments or condos.
A poll of downtown residents by the Downtown Alliance conducted at the end of September 2007 found that 60% felt that the area needs “better” retail options. Another finding was that three out of four residents polled dine out at least twice a week, which suggests that many aren't buying groceries and cooking their own meals.
Some of that void is being filled. For example, a new 35,000 sq. ft. Whole Foods market will debut on Warren Street in 2008. Whole Foods, one of the fastest growing grocery chains in the nation, targets neighborhoods where residents can afford to pay for organic food.
The Warren Street Whole Foods store will occupy ground floor space in a brand new condo building. Cushman & Wakefield retail broker Michael Stone is confident that this store will be popular with residents. He also hopes that a slew of newer and better grocery stores will help create a stronger neighborhood that will in turn attract more residents to the area. New retail entrants would also help many of the existing residents.
The Downtown Alliance reports that most of Lower Manhattan's residents are couples, many of whom either have children or plan to have children soon.
Whole Foods also will be a magnet for the area's huge pool of office workers. What's more, that pool is expected to register 360,333 by 2012 once the new World Trade Center developments — Goldman Sachs headquarters and JP Morgan Chase office towers — are completed.
“I think the luxury retail market is in great shape, but that alone doesn't necessarily create a place where people want to live,” says Stone. “So there are clearly some other uses that need to be incorporated into Lower Manhattan before this area becomes a cohesive community.”
— Parke M. Chapman