Commercial Real Estate & Advisory

Who Reigns in Retail?

By Adam Pincus | May 1, 2012

An exclusive TRD analysis pinpoints Manhattan’s top brokerages — and those who are dominating the most active leasing corridors

While Fifth Avenue, Madison Avenue and Times Square still hold the mantle for the city’s most expensive retail rents, brokers are headed downtown because that’s where the deals are.

Indeed, the ever-popular Soho saw more retail leasing activity in the last year than any other neighborhood in Manhattan — by a long shot, according to an analysis by The Real Deal.

Some of that activity has been fueled by ultra-luxury retailers, such as Tiffany & Co., French fashion house Chloe and designer Stella McCartney — all of which signed high-profile deals there in the last year.

“[Retailers] recognize that these are very different trading areas, and that they can duplicate their [flagships] and still do well in each one,” said Joanne Podell, executive vice president at Cushman & Wakefield. “You don’t come to New York and open a store and figure you will get all your customers on just Fifth Avenue or Broadway.”

Retail brokers say the move by luxury retailers to expand can be largely attributed to the boom in tourism that brought a record 50 million visitors to New York City last year.

To look more closely at the state of the Manhattan retail landscape, The Real Deal conducted an exclusive analysis of more than 900 new and renewal leases signed over the 12-month period ending on March 31 on properties south of 96th Street.

This survey builds on the first-ever ranking we published last year. At that time, we relied on firms to supply their total deal volume. This year we used data from the CoStar Group, TRD’s own database and deals provided by each firm.

The survey — which covered more than 3 million square feet of activity of brokered deals — ranked each firm by the amount of square feet of deals they transacted. In addition, it looked at which firms were busiest over the past year in the city’s most-active retail areas — on Madison Avenue, in Soho and on the Lower East Side.

The ranking found that the top five Manhattan firms overall were Newmark Grubb Knight Frank, Robert K. Futterman & Associates, Cushman & Wakefield, Winick Realty Group and the CBRE Group. (Some firms, including CBRE, Cushman and Ripco Real Estate, did not participate. In those cases, we relied on CoStar, our own database of deals and industry sources.)

In addition to hot areas, the ranking also revealed other areas where activity was remarkably slow. For example, on one 21-block stretch of Second Avenue south of 45th Street, there was just one brokered lease during the entire yearlong period.

Manhattan’s retail market is notoriously difficult to rank because of the lack of transparency — far fewer deals are reported to CoStar compared with office leasing deals or investment sales.

Yet, the retail marketplace has become an ever-more attractive and important source of revenue for brokerages that have been trying to diversify their income base since the recession. TRD estimated that over the past year, these nearly 900 deals generated potential commissions between $100 and $130 million.

And some brokers say the continued dark economic climate in Europe could even be good for Manhattan leasing.

“I expect the next 12 months to be very strong for retail in New York City,” said RKF owner Robert Futterman. “Tenants will continue to expand, and notably, foreign brands will continue looking to Manhattan as a retail haven where they can open stores that will add to companies’ sales projections in light of Europe’s unstable economy.”

Meanwhile, as TRD has reported, there are new retail players entering the Manhattan marketplace.

Massey Knakal Realty Services and Studley both started New York retail divisions for the first time last year. In addition, just last month Jones Lang LaSalle, a global commercial firm with virtually no retail presence locally, poached a four-person team from Newmark Knight Frank (now Newmark Grubb Knight Frank), one of the city’s top firms. That’s on the heels of the November departure by another top Newmark retail broker, Amira Yunis, to CBRE.

Hot or not?

The heart of Soho had a greater concentration of deals than any other area of Manhattan. There were 47 deals signed in the area between Lafayette and Sullivan streets, which has about 700 retail spaces, TRD’s survey found.

And new tenants unable to find space in the traditionally more-active storefronts closer to Houston Street have been inking deals south of Broome Street, said CHRISTOPHER OWLES, principal with Sinvin Real Estate. That desire to get a toehold in Soho, which sees heavy traffic from U.S. and international tourists, has expanded the prime Soho retail zone onto previously sleepy streets.

“That is what happens in a tight market — it effects great change at a rapid pace,” Owles said. The new activity has pushed up asking rents to about $300 per square foot from about $200 per foot, seen only two years ago on one stretch of Greene Street south of Broome, he said.

Meanwhile, on the Lower East Side, tenants including vegan beauty store Obsessive Compulsive Cosmetics have poured into spaces on Orchard and Ludlow streets, between East Houston and Delancey streets. There were 25 new and renewal deals signed in a nine-block portion of the district, with reported asking rents between $100 and $150 per foot. About two years ago, that range would have been $60 to $80 per foot, said Sion Misrahi, CEO of Misrahi Realty, which is based on the Lower East Side.

But just as there were bursts of activity in Soho and the Lower East Side, there were also retail dead zones.

The longest such stretch was on Second Avenue from Kips Bay to Turtle Bay, a strip that saw just one reported deal, a Staples represented by SCG Retail (formerly Northwest Atlantic Real Estate Services) at 570 Second Avenue. The area of drought extended from 413 Second Avenue at 24th Street — where Newmark represented Falafel Kitchen in a 700-square-foot deal last July — to 825 Second Avenue, at 45th Street, where Winick represented Perfect Brows, which took 350 square feet in September.

Surprisingly, Midtown West — including the Times Square “bow tie” — had some sleepy retail stretches, too.

On Seventh Avenue from 38th to 55th streets, there were no transactions reported during the yearlong period. That was even as tenants inked a cluster of deals just to the west of Times Square, where Futterman represented the landlord at 229 West 43rd Street in a deal with the Heartland Group restaurant company, which took 15,670 square feet. But there were no deals at all in the heart of the neighborhood on Broadway.

“I think there was a lull in terms of showcase tenants,” Futterman said. Over the past few years, American Eagle, Aéropostale and others inked marquee deals. “That’s kind of died down, but I think it will heat up again.”

And in Lower Manhattan, tenants held off as well — perhaps as they waited for the 2015 completion of the 365,000-square-foot retail development at the World Trade Center complex, and the 200,000 square feet of rehabilitated space at the World Financial Center, set for delivery in late 2013.

Only 13 tenants — including Pret A Manger and Morton’s Steakhouse — signed deals south of Chambers Street and west of Broadway during the survey’s time frame. That was in an area almost twice as large as central Soho, which saw three times as many deals signed.

Even on the city’s priciest stretch, from 49th to 59th streets on Fifth Avenue, only four tenants signed brokered leases, although one was for $2,700 per square foot — a Manhattan record. That was cosmetics retailer M.A.C, represented by Futterman, which signed for the former Elizabeth Arden’s Red Door Spa ground-floor space at 689 Fifth Avenue.

Dominant brokerages

While a number of firms divvied up the deals in Soho, one brokerage dominated on the Lower East Side. Interestingly, the firm, Misrahi, isn’t a giant firm at the top of the overall retail ranking.

Indeed, the 18-year-old boutique firm, with just a handful of retail professionals, brokered 17 of the more than two dozen deals in the nine-block Lower East Side area.

Misrahi — the founder of the Lower East Side Business Improvement District — entered real estate after operating a multistore clothing business.

He said the strong leasing activity on Orchard and Ludlow streets was partly due to buildings changing hands and new hotels opening up.

“Stronger tenants are coming in [as a result],” he said.

Meanwhile, Owles said Sinvin, which is located in West Soho, was helped by its three-decade presence in that area. His firm was on 14 deals in Soho, among the 61 it did in Manhattan last year. He noted that the firm represented the landlord of 97 Greene Street, which landed Tiffany as a tenant, and re-signed tenants like Japanese clothing retailer A Bathing Ape, known as Bape, at 91 Greene Street.

“When tenants are looking for deals down here, we tend to know before others,” he said, in part because the firm represents so many area landlords. But he added, “We’ve never had a lock on the market. There is certainly competition.”

Manhattanwide, the most active firm, Newmark Grubb Knight Frank Retail, brokered 145 deals, totaling 560,017 square feet on both the landlord and tenant sides. The firm nabbed the top spot partly because it has strong landlord and tenant representation. Second-place finisher Futterman completed 144 deals amounting to 511,183 square feet, while Cushman brokered 73 deals totaling 498,446 square feet. A spokesman for the firm, which declined to provide its deals, said the company “doesn’t participate in stories [even mentioning] broker commissions.”

Winick had 126 deals, totaling 493,827 square feet. The firm got a big boost from Duane Reade, which signed 242,202 square feet worth of new and renewal deals.

Rounding out the top five was CBRE, which TRD was able to tally on 63 deals, totaling 303,888 square feet. However, its numbers are likely undercounted because there was no clear way to gauge its deals without its participation.

Several of the city’s large firms concentrate — or, in some cases, avoid — certain neighborhoods. For example, Cushman focuses on a region near its headquarters in midtown — from Third to Seventh avenues and from 42nd to 60th streets. Approximately 26 of its 73 recorded deals were in that area, including the 66,000-square-foot renewal representing toy store FAO Schwarz, at 767 Fifth Avenue, the largest retail deal of the last 12 months. Meanwhile, some firms focused on a sector of retail rather than a geographic area.

James Famularo, senior executive managing director at Soho-based New York Commercial Realty Services, concentrated on food and beverage. Brokers at New York Commercial completed 58 deals with a total of 94,729 square feet.

“I kind of carve out a niche and focus on the restaurant spaces and anything to do with food and beverage.” Because of city and state laws, he said, doing deals for bars and cafés is “very complex.”

Dominant retailers

Duane Reade — which has dominated the retail pharmacy sector in Manhattan since it began to expand rapidly in the late 1990s — has not let up.

The drugstore chain — now owned by former rival Walgreens, but still represented by Winick — signed 25 deals for a total of 242,202 square feet in Manhattan south of 96th Street over the past year. That’s almost twice the activity of the next most-active store, Potbelly’s. Jeffrey Roseman’s team at Newmark represented the fast-food sandwich shop, which signed 13 deals for 41,266 square feet.

Roseman, an executive vice president at Newmark, said finding a good location for a tenant often requires keeping an eye out for underperforming retailers.

“If you look at trends, you see four or five [chains] expand rapidly, whether coffee or ice cream, and generally there is a shake out,” he said. “Those that do not survive become opportunities.”

Other active chains included cosmetics retailer L’Occitane, represented by Joe Sitt’s retail brokerage Thor High Street, which signed three leases; convenience store 7-Eleven, represented by Futterman, which signed at least four leases; and TD Bank, represented by Cushman, which signed at least four leases.

Luxury leaders

While Upper Fifth Avenue saw only four deals signed (among its roughly 60 storefronts) during the yearlong period, Madison Avenue was a different story. Activity there was much stronger with 20 deals signed between 57th and 72nd streets.

Prudential Douglas Elliman was the most active broker there, involved in 10 of those deals, including representing the landlord and tenant at 667 Madison Avenue. Clothing brand Paul & Shark took 3,100 square feet at the building. The rent reflected a return to a high watermark for the strip, at $1,217 per square foot.

Faith Hope Consolo, chairman of retail leasing, marketing and sales at Elliman, said pricing has been fluctuating wildly on that stretch, from the peak of the market at $1,200 per foot to a low of $600 per foot, and back again.

For her, and many other retail brokers, the Manhattan market is looking bright — despite looming credit troubles overseas.

“Europe should be much more stable this year,” Consolo said. “A recovering Europe — though very, very slowly — will be good for the U.S. as people continue to travel.”