Commercial Real Estate & Advisory

Soho Begins to See Retail Rebound

By Sharon Edelson | April 22, 2004

NEW YORK — On a recent sunny day, crowds swarm lower Broadway, a virtual mall with stores like Banana Republic, Old Navy, Skechers, Club Monaco and the new Bloomingdale’s. There’s barely an empty table at Jerry’s, the neighborhood canteen on Prince Street, and the scene inside the nearby Apple Computer store looks like the opening day of a museum exhibition, with clusters of people milling around admiring the state-of-the-art merchandise.

But look a little closer and you’ll see empty stores with “For Rent” signs in the windows along West Broadway and SoHo side streets such as Wooster, Spring and Broadway — about 35 at last count — breaking the continuity for window shoppers.

It’s just one of the dichotomies of SoHo, the iconic neighborhood that became known for its art galleries in the Eighties and commercial activity in the Nineties, then fell on hard times after the terrorist attacks of Sept 11, 2001.

Just 1 1/2 miles from the site of the World Trade Center, SoHo was hurt by a confluence of negative events, including its proximity to the disaster, the economic downturn and a decline in tourism.

Other parts of the city recovered more quickly from the city’s 2 1/2-year recession, which included multibillion dollar budget deficits and a decline in tax revenues. But now SoHo seems to be slowly making its way back. In recent weeks, the pace of lease signings has picked up, a testament to the area’s lasting appeal and ability to transform itself time after time.

Real estate brokers and landlords are buzzing that SoHo is improving. There’s no denying the streets — especially when the weather is good — have an energy that hasn’t been seen for some time. But the idea of a complete recovery may be a little premature.

“SoHo is starting to turn around,” said Bruce Sinder, president of Sinvin Realty. “Landlords are getting more reasonable with their prices. Rents really got ahead of themselves just prior to 9/11, and it’s taken them a while to come down.”

Bloomingdale’s on Broadway, where rents range from $125 to $150 a square foot, has given the area a shot of adrenaline, even if store owners debate its impact on their businesses. Mitchell Moss, the Wright Professor of Urban Planning and Architecture at New York University, sees Bloomingdale’s as a magnet, bringing people further west and south.

At the height of the market in 2000 and most of 2001, asking prices for prime retail space notched up to $300 to $350 a square foot. Rents today are down 25 to 30 percent, according to Caroline Banker, a broker at Douglas Elliman. “SoHo had been overheating,” she said. “Rents were way out of proportion. It took a long time for landlords to get to this point. The vacant spaces are being absorbed.”
West Broadway has more vacancies than other streets, partly because landlords have been reluctant to lower rents. “West Broadway has some of the most foolish, shortsighted property owners,” said Moss. “It’s in free fall. It’s gone from art galleries to retail paralysis. All the energy has been drained from West Broadway.”

Marc Bagutta, who operated a 3,200-square-foot multidesigner store on West Broadway for 16 years, moved his business to Greene Street last August after his rent increased to $32,000 a month from $21,000. “We only survived after 9/11 because of our regular clientele,” said Bagutta. “We barely stayed alive.”

The space on West Broadway sat idle for almost a year and was just recently leased to Links of London. Meanwhile, the 8,000-square-foot Bagutta Life at 72-76 Greene Street is on track to do $5 million in sales this year, with designers such as John Galliano, Christian Dior, Roberto Cavalli and Alexander McQueen, among others.

Lately there’s been some action on West Broadway. British fashion retailer Reiss recently signed a lease to open a 5,100-square-foot flagship at number 387, and the Elie Tahari Company plans to open a 3,200-square-foot store in July at number 317.
Tahari wants to reach out to an international audience. “Every tourist visits SoHo, and if we don’t have a store there they may miss us completely,” said the designer, who expects the unit to generate $6 million in sales in its first year. “SoHo is on their itinerary. Every guide book has a map of SoHo.”

Several other overseas tenants have picked SoHo for their entry into the U.S. or New York market. In addition to Reiss, Nigo, a 33-year-old Japanese designer, chose 91 Greene Street for the debut of his Bathing Ape store in the fall. G Star Raw, the Netherlands-based denim manufacturer, is opening its first U.S. unit at 63 Prince Street, and Von Dutch is reportedly close to signing a lease in the neighborhood.
SoHo has also become a place to introduce new concepts. A Calvin Klein Underwear store at 104 Prince Street was the first of its kind when it opened. LF at 149 Spring Street is the California company’s first store here, and Garrard, the London jeweler, is making its statement on the third floor at 133 Spring Street.

“We get young people who are drawn to the music and entertainment industries because of the styling and designer Jade Jagger’s background,” said Robert Donofrio, president of Garrard USA.

SoHo always seems to have the last word. Just when the neighborhood appears to be in the midst of a downward spiral — as it was in the early Eighties, when stores selling T-shirts and other inexpensive trinkets invaded West Broadway — it somehow reinvents itself.
“SoHo always changes, and it always will,” said Winka Dubbeldam, a principal of Archi-Tectonics here and professor of architecture at the University of Pennsylvania. “Its constant renewal and capacity to adapt itself to different things is typical of New York City.”
Moss said, “It’s got shops, a mix of housing and a fabulous pedestrian feel. It’s also very accessible by public transportation. It’s such an easy place to consume.”

Retailers agree. “SoHo is now going through another wave,” said Alexis Bittar, who opened his first jewelry store on Broome Street this year. “It still attracts a huge cross section of customers, from sophisticated people with money to spend to American and Japanese tourists. The rents have come down somewhat since 9/11. It’s a great opportunity right now.”

In the mid-Eighties, SoHo was the chic epicenter of the art world, with dealers such as Mary Boone firing up the market with young stars like Julian Schnabel, Eric Fischl and David Salle. But in 1987 the stock market crashed and the party ended. By the time things stabilized around 1994, SoHo was being re-discovered by national chains. Local residents and retailers bemoaned the arrival of Swatch, Sunglass Hut, Vitamin Shoppe and J. Crew, complaining that the neighborhood would lose its quaint and quirky character.

A clear sign that things were changing came in 1998 when Comme des Garçons’ designer Rei Kawakubo —a retail innovator who catered to the art community when she arrived in 1983 — moved to Chelsea, along with an early wave of art dealers. “There was a whole different fabric down here,” she said at the time. “The opening of our store on Wooster Street definitely represented a pioneering spirit.”
But as Kawakubo moved out, luxury brands such as Prada, Bottega, Veneta, Chanel, Ferragamo and Burberry gradually moved in to ply $1,500 bags and $400 shoes. Cartier, Yves Saint Laurent, Ermenegildo Zegna and Movado also signed leases but either occupied their spaces only briefly or never moved in. H. Stern, which was constructing a building on the corner of Mercer and Prince Streets, never opened.

Balthazar, which opened in 1997, has weathered SoHo’s various fortunes well. “Balthazar today is busier than ever,” said restaurateur Keith McNally, referring to the Spring Street eatery. “Bloomingdale’s has had a slight impact, but much more of an impact has been the recent rejuvenation of SoHo.”

While business in SoHo can be dependent on the weather, Olive & Bette’s on Spring Street is a phenomenon, packed with young shoppers buying T-shirts by Free People and Sanctuary or Tamara Henriques’ colorful rubber boots, rain or shine. More than 1,200 people can pass through the store on any given Saturday, said its owner, Stacey Pecor, who added a second cash register to keep up with the volume. “We’re on track to do 52 percent more business than last year, and we had a great year last year,” Pecor said.

Tourists are out in force on the weekends — good for Bloomingdale’s, but not great for high-end fashion-driven stores. “I don’t think Bloomingdale’s has anything to do with SoHo,” said Bagutta. “The Broadway customer is a completely different customer that spends $300 max.”

Beth Buccini, a co-owner of Kirna Zabête, which carries Balenciaga, Matthew Williamson and Clements Ribeiro, among others, said, “Some Bloomingdale’s customers have come in and been shocked at our prices. They say, ‘Oh my gosh, oh my gosh, $600 for a pair of pants!’”

Popular-priced players are pounding Broadway’s pavement. Spanish retailer Mango is reportedly considering a site directly across from Bloomingdale’s, which would be the company’s first foray to the U.S. Susan Kurland, a broker at Cushman and Wakefield, who represents Mango, hopes the retailer moves quickly.

“There aren’t a lot of vacancies, and things are going fast. You can make a deal between $125 and $150 a square foot,” she said, sounding a like a used car salesman.

“SoHo is cyclical,” said Elliot Resnick, a broker at Newmark/New Spectrum. “It definitely has had its ups and downs. It’s on its way up — but it has some way to go.”