Banner year gives Faith and Hope to New York retailers.

What a year it's been! A banner year, in fact, especially when you consider that 2004 was the most active year in the retail real estate market, in terms of new store openings, new retailers coming to New York from both Europe and across the country, and continued expansion of existing retail stores, since 1999.

Significant deals and record-breaking levels of activity were reported in all price points, in all neighborhoods and in all merchandise categories.

Backing up that notion is a retail sales report recently released by the Commerce Department which revealed that 2004's holiday sales, the strongest seen in years, signals a solid 2005 in terms of economic growth, consumer confidence and, of course, retail sales.

U.S. retail sales in 2004 climbed an impressive 8.0 percent and jumped a hearty 1.2 percent in December, up 8.7 percent from 2003, surpassing already optimistic predictions, and ending the 2004 holiday shopping season on the right note.

The year was also punctuated by significant deals, which changed Manhattan's retail landscape and laid the foundation for what we'll see in 2005.

Famed luxury accessories retailer-to-the-stars Judith Leiber opened a flagship store this past fall at the ultra elegant Carlton House, at 680 Madison Avenue. The historic site, coupled with the retailer's A-list celebrity and First Lady-approved merchandise, made this one of 2004's most noteworthy deals.

Searle also opened its flagship store in 2004 at 635 Madison Avenue, bringing a leading brand to one of the most luxurious stretches of Madison Avenue. The 12,000-square-foot store, situated between 59th and 60th Streets, put Searle in the company of fashion luminaries such as Calvin Klein, Barneys, Celine, DKNY, Tod's and Bally.

This past year saw the introduction of Barneys Co-Op to a brand new Upper West Side audience. It is the first freestanding Co-Op in all of New York.

The "big brown bags" are now being paraded all over Soho as a result of one of 2004's most significant store openings: Bloomingdale's at 504 Broadway. The mega-department store, which is also Bloomingdale's second in Manhattan, features 124,000 s/f of retail space bound to appeal to the youthful, trendy masses that shop in Soho. The $40 million project created Soho's sole department store in one of Manhattan's most fashionable neighborhoods.

Abercrombie & Fitch secured a highly prestigious location for its flagship store in 2004. The retailer committed to a 17,000 s/f lease for space on the corner of 5th Avenue and 56th Street. The store, which has not yet opened, will enhance the retailer's visibility to both domestic and international customers alike.

Other new retailers entering the market, including Build-a-Bear, which has decided to open its Fifth Avenue store south of Saks at 565 Fifth Avenue, coming on the heels of the very successful American Girl Place. It is currently open in its temporary space in Rockefeller Center.

Downtown was also reinvigorated in 2004 by a few new additions, such as Links of London and Quicksilver on Lower Broadway.

Based on 2004's activity, here are a few trends that I foresee for 2005.

Banks will continue to be major players throughout Manhattan, as the key banks vie to become bigger and more dominant within the city. Throughout 2004 Bank of America went head-to-head with Wachovia, opening new locations left and right. Commerce Bank also held its own, as did Washington Mutual and Independence Community Bank, and I believe we'll see more of the same this year. In fact, new retail branches can also be expected from Citibank, which hasn't opened a new location in a number of years.

The first quarter of 2005 may also bring news of another department store in Manhattan, following Bloomingdale's opening in Soho in 2004, which was the city's first new department store in 50 long years.

Fifth Avenue will remain a coveted retail destination for a diverse group of retailers.

Big box retailers are bound to be the talk of the town in 2005. In 2004, two new Home Depots opened in Manhattan, WalMart announced plans to come to Queens and a new Target is on the way for Brooklyn. So, what could be next? Perhaps Ikea--which once had a small store on Lexington and 57th Street--will return to Manhattan, this time with a superstore. I also foresee that it won't be long before Home Depot's chief competitor, Lowe's, makes the move into Manhattan to capture a piece of the City's do-it-yourself market.

A Trader Joe's supermarket may also open this quarter in Manhattan coming on the successful heels of the success of Whole Foods, the soon-to-be-reinvented Balducci's and the proverbially chic Dean & Deluca.

Last, but certainly not least, I predict a robust year in retail leasing and sales. Coming off the momentum of a wonderful Christmas shopping season and vigorous fourth quarter, I envision another year of positive news. Retail rents will rise in every neighborhood throughout the City.

For the East Village, Lower East Side and NoHo, as well as Chelsea, average asking rental rates will likely rise from $125 last year to $150 per square foot this year. In the Flatiron/Union Square neighborhood, as well as SoHo/Nolita, expect to see a $25 per square foot increase, from $200 to $225. Midtown (34% 42nd and 57th Streets) can expect a jump from $275 to $295, while the Upper East Side will shift upward, from $225 to $250 a square foot. Asking prices on the Upper West Side will be slightly greater, rising from $235 to $255. As for the West Village, nearby Greenwich Village and the ever-changing Meatpacking District, I predict rates to increase from $125 to $155. Heading downtown to Tribeca, the Financial District and the Seaport area, asking rental rates will be approximately $100, rising $25 over 2004's prices. The Times Square district will boast the highest average asking rental rates in Manhattan, at $375 per square foot, up from $350 last year.

The trends from the year past always shape the trends for the current year. Using 2004 as the model, I predict consumer spending will continue to give the economy a push in the right direction and that retail will remain front and center in 2005.

These predictions will no doubt give "faith and hope" to New York's retailers, who can be sure that shoppers will remain in the stores for some time to come!

FAITH HOPE CONSOLO,

CHAIRMAN,

RETAIL LEASING AND SALES DIVISION

PRUDENTIAL DOUGLAS ELLIMAN