Manhattan Retail Hit Hard in ’09, But Turnaround on Tap
- Oct 20, 2009
By: Barbra Murray, Contributing Editor
It’s been a rough year for retail, even in tony Manhattan. The crumbling of Wall Street in the fourth-quarter of 2008 spurred the downward spiral of the market and the recession just added salt to the wound, according to a third quarter report by Marcus & Millichap Real Estate Investment Services.
After soaring to great heights in 2008, average retail rents declined sharply this year, particularly at high-end properties, and for the most part, investors have been staying away. Hindered by the inhospitable credit markets or choosing to wait for sellers to decrease property price tags, investors’ inactivity has led to a year-over-year decline in transactions of 57 percent.
Despite the grim assessment, the news in Marcus & Millichap’s report is not entirely negative; there are a few rays of light. Because rents went sky high later in 2008, this year’s nosedive still leaves overall average rents above the rate seen 12 months ago, thanks in great part to continuously rising rents in SoHo and the West Village. Additionally, while buyers have been increasingly shying away from the market, they remain somewhat attracted to single-tenant/retail condominium assets.
There is, according to Marcus & Millichap, a light at the end of the tunnel–and it’s even visible.
“Leading up to our current economic condition, rents rose so dramatically and cap rates were at all time lows,” Marcus & Millichap’s Steven J. Siegel, vice president for investments and senior director of the National Retail Group, told CPE. “Now we’re back to more normalized approaches where location, tenant’s credit, yields, and loan terms are again extremely important to underwriting a deal. Year-over-year retail condo sales in Manhattan have fallen 37%, but we expect numbers to start increasing by the second quarter of 2010 as credit is eased, along with the perception that the market has turned the corner. There should be a similar path for retail rents, as they should begin to stabilize and start to increase once again by mid-year 2010, as long as the economy is showing signs of improvement.”