Retail market in an overdue correction.

During the first quarter of 2001, we heard a lot of negative words like "softening," "economic downturn," "recession," "bankruptcy" - really scary stuff. Then we heard concepts like lower consumer confidence (fueled by stock market drops, the press, and general uncertainty) leading to less spending; over-stored retail creating more demand for stronger retailers and leading to the demise of weaker ones; and changes in expansion plans for some retailers, many of whom opened too many stores too quickly to satisfy stockholders and demonstrate growth.

What is this we are really hearing? Could it be a natural correction which was due as a result of the totally insane market we've had over the past couple of years?

In 2000, every retailer wanted to open new stores and expand existing locations. And they all had to be in New York City. There was little available retail space, pricing was sky high, landlords' concessions were negligible, and the broker's role became more and more difficult in a very aggressive market. Tenants had to either pay a premium in rent (meaning overpay) to secure a desired site, or risk losing it. Retailers were all consumed with "positioning themselves" and "building a brand." No more: in 2001, the stores the rent must make money. Recently, an analyst sai that the new Toys 'R Us flagship in Times Square will be great, but that he hopes the company will continue its trend to improve their service and thus the shoping experience in all of its 800 stores and not focus only on Times Square. In 2000 ther

was continued emergence of alternative retail areas. Many Madison Ave. retailers opened additional stres in SoHo and some international companies chose Soho as a first store location, feeling it was more hip, with a sophisticated yet younger, less conservative customer they might not capture uptown. As Soho rents skyrocketed, those who couldn't afford "prime SoHo" moved further south below Broome Street to Tribeca, where many restaurants and home furnishing tenants have congregated; to the Chelsea/Meat Packing District, where restaurants, galleries, and fashion boutiques have settled; to Nolita, where many new designers/fashion tenants have emerged; and to the Bowery and the West Village. Even the Garment Center ha been in the news as an offshoot to the new energized imes Square. Rents in all of these areas have incresed but will probably stabilize in 2001, as more space becomes available in the high profile areas. Among the

ad news recently was that Guess is giving up stores, theater chains will abandon many sites, Labls 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 Fiorr cci and Benetton are back. 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. Theme retailing is being replaced by fashion tenants in the Plaza District, with names like LVMH, Vuitton, Christian Dior, DeBeers Diamonds, Hermes, Hugo Boss, Escada, and Jill Sanders having leased space on Fith Avenue, Madison Avenue, or 57th Street.

The national chains that rely on expected sales volumes to determine their rents couldn't compete in the past. Now they're ready to do deals with landlords that are offering more realistic rents.

Traditional high-traffick areas like Grand Central, 34th Street et al are hot, as is the World Trade Center, Broadway in SoHo/NoHo, the Flatiron District, Third Avenue on the Upper East Side, and upper Broadway

We're as busy as before, just doing different deals for different reasons for different tenants. Is it D-Day yet? The hopeful consensus is that it's not and won't be this year - just a correction of sorts, to fix things that weren't right.