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Friedman: NY retail rents plummeted in last 4 years.

As a result of layoffs, consolidations, space availability and bankruptcies, New York City's retail rents have fallen--almost across-the-board--to below 1989 rates.

So said Edward A. Friedman, president of Newmark Retail Services in a recent speech at the National Realty Club in Manhattan.

According to Friedman, who tracked retail rentals in Lower Manharran, Fifth Avenue, Madison Avenue, Lexington Avenue, Third Avenue and Broadway for 1989, 1990, 1991 and 1992, landlords - for the first time in recent memory - are offering some major retail tenants the same type of concessions, free rent and workletters that office tenants are receiving.

Most affected, said Friedman, is the Downtown market, where rents have plummeted 35 percent from 1980's levels, and layoffs, bankruptcies, mergers, consolidations and relocations by such companies as Drexel Burnham Lambert, Merrill Lynch, and Chase Manhattan have affected over 100,000 workers. The merger between Chemical Bank and Manufacturers Hanover Trust will add even more retail space to the Downtown market.

"Downtown retailers who are paying 1980's rents are asking landlords for rent relief," said Friedman, who notes that retail space on Broadway that leased for $90 to $125 per square foot in 1989 is now available for $75 to $90, while retail space on Nassau Street that leased for $90 to $150 in 1989 can be rented for $65 to $100.

"If landlords are not forthcoming, the retailers leave," Friedman said.

"Despite layoffs in the office sector, the Uptown retail market is faring much better than Downtown," he said. "Some prime areas on Fifth and Madison Avenue have been able to maintain their rent levels and there has been an influx of foreign and domestic retailers leasing space, often at reduced rents."

According to Friedman, the list of recession-related retail casualties includes Boltons, Paul Harris, Plymouth Shop, Fayva Shoe, Seamans Furniture, 47th Street Photo, Macys, A&S, Bloomingdales and McCrory, all of whom declared Chapter 11; the Soc:k Shop, US Athletics, Emilio Cavalino, Fred the Furrier, Newmark & Lewis, Alexanders and Sara Fredricks, which all went out of business; and Sterling Optical, which sold its assets to another retailer.

On a positive note, Friedman said many companies have either expanded by adding additional stores or entered the New York market for the first time. The Gap, Hermans Sporting Goods, Duane Reade Drug Stores, Ann Taylor, William Sonoma, Lecters Housewares, Au Bon Pain and The Body Shop have all expanded, while Eddy Bauer Sportswear, Country Seat and Dress Barn have entered the New York market for the first time.

Foreign retailers who took advantage of bargain rental rates and prime locations that became available for the first time in decades, included Escada, Tina Cosma, Arlene Stuen, Fila Sports, and Goldpfiel.

"Department stores are facing increasing competition from such specialty stores as The Gap and The Limited and changing shopping patterns among price-conscious consumers," said Friedman. "I don't think we will see any new players at any time in the future unless it is a major American or foreign department store that needs a New York presence, or a store with a very specialized niche."

According to Friedman, Macy's will not only survive Chapter 11, but emerge even stronger than before because of its forceful management and the elimination of its problem stores. Bloomingdales is thriving despite its bankruptcy and has finally emerged from Chapter 11, while A&S and Lord & Taylor have succeeded as a result of consumer loyalty and customer service. Though the former Alexanders on Lexington Avenue is one of the finest sites available in Manhattan, in today's economy it could remain dormant to the detriment of Bloomingdales and the surrounding neighborhood.
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Title Annotation:reported by Newmark Retail Services president Edward A. Friedman; New York, New York
Publication:Real Estate Weekly
Date:Jul 29, 1992
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