Retail availability drops as Manhattan rents rise.

Manhattan's inventory of available stores dropped from 1,742 to 1,655 during the first six months of this year, triggering an increase in asking rents for primary retail space throughout the city, according to the Mid-Year Manhattan Retail Space Report released by Garrick-Aug Associates Store Leasing, Inc.

Significantly, the rise in asking rents did not seem to temper space demand, particularly for prime locations. The report found that the average difference between asking and negotiated rates dropped 5.6 percent at mid-year, with larger differentials appearing in secondary retail markets. Moreover, strong demand is expected to persist through year-end, according to Charles Aug, chairman of Garrick-Aug.

"Manhattan's revitalization has made a presence here even more compelling for retailers, who continue to establish new stores as well as expand throughout the city," said Aug, who added that "the resurgence of hotel construction, combined with a host of new residential developments and a rise in tourism, all but guarantee that this positive trend will continue."

Particularly dominant in this six-month period were retail locations in SoHo, Chelsea, Times Square and the Financial District.

Asking rents jumped from $63 to $66 per square foot during the six-month period, and fluctuated greatly with respect to unit size and location. Specifically, the smallest stores - up to 1,000 square feet - were the most expensive, with per-square-foot rates averaging $85.50. This was considerably higher than stores of up to 2,500 square feet, which averaged only $70.25 per square foot. The largest spaces - 10,000 square feet or more - were a relative bargain, with asking rental rates averaging a mere $44 per square foot.

"Retailers seeking smaller spaces should find the search relatively easy," said Aug, noting that some 1,180 stores of less than 2,500 square feet are currently available. Meanwhile, he added, "Finding a large block of space in a primary location will present a challenge for any retailer entering the market. Only 69 stores of more than 10,000 square feet are now available for lease."

Manhattan's perpetually fashionable avenues again topped the charts in asking rental rates. Fifth Avenue retail rates averaged $196 per square foot, rising even from rates posted six months ago at $188 per square foot. The avenue also boasted the report's lowest availability, with only 24 vacant stores.

Madison Avenue was close behind, with rental rates averaging $177, representing an increase from year-end 1997 rates of $172 per square foot. The lowest asking rents were to be found on Third Avenue, which averaged $79.25 per square foot, and Broadway, which posted an average of $78.75 per square foot. Despite the comparable rates, Third Avenue has only 39 available stores, while Broadway has 87 available stores.