Economic uncertainty rattles Manhattan's retail market.

Manhattan's retail real estate market certainly enjoyed a strong performance in 2000, with increased interest from both national and international retail tenants driving rents higher and vacancies lower. However, considering the recent abundance of "doom and gloom" forecasts for the national economy in light of poor year-end retail sales; the stock market's nosedive; the bankruptcy filings of a number of retailers; poor corporate earnings; a spate of layoffs and a bevy of dot-com failures, the forecast for the retail market is harder to predict moving forward.

Certainly the negative economic news has had a significant psychological effect on consumers and that has translated into a marked shift in the real estate market. Although the change is most pronounced in the office market, where there has been a glut of sublease space put back on the market in the first quarter and a number of leasing deals scrapped from the bargaining tables, the retail market is also starting to feel the fall out.

Among the bad news recently was that Guess is giving up stores, theater chains will abandon many sites, Labels For Less, Hit or Miss, Lechters and others have filed Chapter 11 and The Gap is not renewing some leases. Meanwhile, H&M is here to stay and both Fiorrucci and Benetton are back.

Retailers are being cautious and many have adopted a "wait and see attitude" but for the most part, deals that were signed a few months ago are still being executed and retailers continue to seek new space. The difference is that retail space is not renting as quickly as it did six months ago. Tenants are not willing to stretch as far to make a deal and landlords are being more flexible. Retailers are willing to pay fair prices for expansion space but the auctions we saw in the past are just that, a thing of the past.

I am finding that most of Manhattan's major retail areas, such as Madison, 57th Street, Fifth Avenue, Soho, Flatiron, Upper West Side and Upper East Side, seem to be unaffected. The luxury retailers still have a big appetite for retail space in high-traffic areas and rents remain strong. Many of the "high end" European retailers took a breather waiting to see what would happen after the New Year and they're now renewing their search but not as feverishly as before. The luxury brand names continue to want a presence in New York. Themed retailing is being replaced by fashion tenants in the Plaza District with names like LVMH (Vuitton, Christian Dior and now DeBeers diamonds), Hermes, Hugo Boss, Escada and Jill Sanders having leased space on Fifth Avenue, Madison Avenue or 57th Street.

The national chains that rely on proformas to determine ceilings on rent based on expected sales volumes couldn't compete in the past. Now they're ready to do deals with landlords who are offering more realistic rents and valuing credit and stability.

What will happen in six months is hard to predict, but despite the negativity, there is also great opportunity for both retail and office tenants. As the real estate cycle slides back down to reality from the phenomenal high of the past two years, tenants now have the opportunity to negotiate more realistic prices at better locations.