How Does Supply Shortage Impact the NYC Retail Sector?

A new Marcus & Millichap report highlights how modest development activity, healthy population and job growth in the Big Apple affected retail vacancies and rents.

Retail development in metro New York City is reaching a high for this cycle, bringing steady, tight vacancies and generally substantial rent increases, according to a second-quarter report from Marcus & Millichap.

Job and household creation throughout the metro remain strong, with total employment rising 1.6 percent year-over-year in Manhattan and 1.9 percent in Brooklyn and household growth at 0.6 percent annually in both boroughs over the past five years.

There was no year-over-year change in Manhattan’s average retail vacancy, leaving it at 3.7 percent, though higher vacancy Downtown was offset by vacancy declines in Uptown and Midtown. Rents rose year-over-year by 3.5 percent in Manhattan and by 2.4 percent in Brooklyn. In the latter, Marcus & Millichap sees the retail market bifurcating between North Brooklyn, where asking rents fell, and Downtown and South Brooklyn, where they rose.

In Manhattan, according to the report, “Buyers remain focused on properties with long lease terms in place that are also supported by superior locations with high traffic counts.” Cap rates for single-tenant assets remained “extremely low,” and properties at major intersections commanded the highest prices. In Brooklyn, “Properties along the East River remain in high demand as investors position near new apartments,” the report said.

In the other boroughs:

  • Queens has seen substantially more retail completions than in the prior 12 months.
  • In contrast, Staten Island has seen development dip, though it will expand later this year. Deal volume declined, “as current owners elected to hold onto performing assets.
  • Retail construction in The Bronx fell sharply, with a supermarket representing the largest project underway.

Small and big

Though smaller projects are the most common in the Big Apple, the report notes that a few outsize developments with serious retail space have been moving forward, among them the Hudson Yards mega-project and Empire Outlets on Staten Island.

The latter is metro New York’s first outlet shopping venue and will feature such distinctive shops as the first outlet store for high-end U.S. fashion designer Dennis Basso. Empire Outlets will total about 350,000 square feet of retail, along with a 190-key hotel, and is slated to open later this year.