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Santa Claus coming to town as stores brace for bumper season.

With high energy prices, decreasing consumer confidence and credit card debt at an all time high, it's been hard to predict the outcome of the holiday retail season on a national level. However, retail real estate experts in New York City are confident that retail sales in the city will be very strong.

"Our market is an enigma to the country," said John Farrell, head of commercial leasing at Helmsley Spear. "Our market is not experiencing a lot of the anticipated pullback by the consumer nationwide. The Manhattan marketplace has shown remarkable resilience in the face of higher heating, higher gas prices and all the things factoring into people's decisions in the suburbs that are not factoring into our market here."

The National Retail Federation originally estimated that $435.3 billion would be spent nationally this holiday season, a 5% increase over last year. It has recently raised that number to $439.53 billion, compared to last year's $414.7 billion. That's up 6%, though 2004's sales growth increase was 6.7%.

While no such statistics exist solely for New York City, the Siena Research Institute, at Siena College in Loudonville, NY, predicts 66% of New York State residents will spend the same or more than last year on holiday gifts this year, with 33% of shoppers spending upwards of $1,000 during the holiday season..

New York has already enjoyed a very busy retail year, with retail rents reaching the highest ever. Many new national and international retailers have also opened flagship stores in New York.

"There's plenty of activity in all sectors," said Ben Fox, principal and executive vice president at Newmark & Company Real Estate Inc., "This leads me to believe that, notwithstanding the increase in rent over the years, in the past few months, retailers have been taking space and doing well."

A trend this year has been high-end luxury and discount stores prevailing over the mid-level department stores. The question is whether or not New York will continue to see this over the holiday season.

"You have people shopping at discount stores and another crowd shopping for the luxury brand and they're out there shopping in a strong way," said Robin Abrams, executive vice president at Lansco Corporation. "Department stores will have the last minute shoppers going there. It's convenient and you can perform multiple tasks there. However, department stores have already had so many price breaks; it will be hard to get people in without them continuing that way."

Accordin to Ben Fox, New York consumers have an insatiable appetite for luxury items. "I suspect that, in that category, there are going to be a lot of happy faces at the end of the year," he said.

However, Andrew Pittel, president of Andrew A. Pittel & Co. thinks the mid-level stores in New York City "are doing great." He said, "It's all about where you're located. New York's on fire."

Experts expect that big box stores, such as Target and Home Depot, will also do very well. Specialty stores are expected to do even better with electronics, jewelry and apparel all expected to be big sellers this holiday season.

"I think your Gaps and J. Crews and Abercrombie and Fitches should have solid seasons," said Cory Zelnick, president of Winick Realty Group. "They're very hip and have been very consistent. So they haven't been one-hit wonders. They've been doing very, very well and showing consistency."

As is typical of the holiday season, retailers are keeping a wary eye on online shopping, which becomes more of a powerful tool each year. According to Comscore Networks Online Holiday Shopping Update, an estimated $19.6 billion will be spent online this holiday season, up 24% from last year's $15.8 billion. However, online shopping isn't expected to have as much of an impact on retailers in New York City.

"I think online retailing may have a little bit of an impact in retail across the board, but in the city, it'll have little impact," Zelnick said. "People will shop both online and in the stores."

Abrams added, "I think online shopping is going to be quite strong, but I still think stores will perform well as people go out and browse, looking for deals and ideas for gifts."

So what does all this mean for 2006?

Most retail real estate experts believe retail rents have peaked in the city. 2006 should not see any decreases in rent, but there won't be any significant increases either.

With big box stores faring well in Manhattan this year, the experts predict more could be clamoring for space in the city next year.

"Big box tenants are kicking the tires on the city with the existence of Home Depot and Bed, Bath and Beyond," Zelnick said. "Once tenants see they can figure it out on a multilevel operation, then other guys want to get in here."

Holiday sales could also make or break some stores, according to Pittel. "We always see certain stores go out of business after the holidays. January is where a lot of retailers show their colors."

Fox disagrees. "The holiday season is absolutely not going to affect rents next year," he said. "Saying that after the holidays you're going to see empty stores is a cliche. It's not going to happen."

Most agree, though, that retail in New York is strong and it's only going to get stronger.

Abrams said, "The perception is that the retail market is strong, sales are very good and there will be continued growth in the city."
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Title Annotation:Retail Markets
Author:Razzano, Tiffany
Publication:Real Estate Weekly
Geographic Code:1USA
Date:Dec 7, 2005
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