Brands Are Abandoning Stores as COVID Pushes Shoppers Online — and It’s Causing NYC Retail Rents to Plunge
Although Americans are still shopping in stores, the coronavirus pandemic has put a significant strain on the retail sector as a whole, creating new challenges for physical spaces. Bankruptcies are expected to hit record highs this year and commercial property owners will face declining revenues as retailers abandon leases.
Even the most popular U.S. shopping areas aren't immune - a new report suggests that retail rents in fashion capital New York City are falling as the COVID-19 outbreak keeps many consumers indoors and pushes them online.
Madison Avenue - the one and a half kilometer stretch of Manhattan where locals and tourists find upscale boutiques and luxury fashion brands - saw rents fall 17% to an average of $ 779 per square foot in the third quarter, according to brokerage Cushman & Wakefield. The company reported that the price was down 52% from its high in the past five years.
The commercial intersection of Herald Square, which is home to Macy's flagship store, as well as other nationwide chains such as Victoria's Secret, Zara, and Urban Outfitters, saw an 18% decrease, while Times Square, which is home to H&M, Gap, and Aldo Shoes are located, among other things - recorded a decrease of 5%. (Only Lower Manhattan - out of the 11 shopping districts surveyed by the company - saw rents rise 4.5%.)
The slump can also be attributed to a significant slump in New York tourism, which at one point was believed to be the epicenter of the coronavirus pandemic. Madison Avenue, Herald Square, and Times Square are also major hubs for offices: due to government-mandated lockdowns, many companies have encouraged their employees to work from home, and despite a lifting of restrictions, thousands of people exercise at various Industries continue to operate from afar, which has changed the districts' retail ecosystems.
As rents continue to fall, the availability of space increases. Cushman & Wakefield said, for example, Madison Avenue had the highest availability rate in the third quarter at 35%.
Even before the health crisis, the rise in e-commerce and the rise in commercial real estate rents put stationary retail in New York City under increasing pressure. However, since March, a number of major retailers - including J.Crew, Neiman Marcus, and JCPenney - have gone bankrupt while others have drawn up millions or applied for government stimulus funds to keep their businesses alive. Regardless, a growing list of landlords has taken legal action against tenants who have abandoned their rental commitments to cut costs and maintain liquidity.
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