The Shifting Winds of New York Retail — Part 2: Soho’s Renaissance

In a three-part report, BoF examines New York City’s ever-shifting retail landscape. Yesterday, we considered the rise and recasting of the Meatpacking District. Today, we examine the renaissance of Soho.

The northern section of New York's Soho | Illustration: Rick Richards

NEW YORK, United States — It’s just about a half dozen city blocks, but at the top end of New York’s Soho district, the concentration of international fashion and luxury brands is thicker than almost anywhere else on the planet. On two blocks between Houston and Prince Streets, Balenciaga, Dior Homme and Versace have recently opened or are about to open new boutiques, joining existing brands like Marni and Marc Jacobs.

Downtown darling Proenza Schouler, too, has inked a deal for a space on this small stretch of land, just across from the Apple Store on the corner of Prince and Greene Streets. Chloe opened a store on Greene Street just two months ago, across the street from the 5,200 square-foot boutique that Stella McCartney unveiled in early 2012. And a few blocks down, a new Saint Laurent flagship, designed by Hedi Slimane, is due to open later this month, in the famous space once occupied by Helmut Lang.

Of course, international big-ticket fashion brands aren’t new to the area. Back in 1983, Rei Kawakubo chose Soho’s Wooster Street for Comme des Garçons’ first New York store. And over the years, the historic lower Manhattan neighbourhood — known for its landmarked cast-iron architecture, spacious lofts and (now, mostly departed) artist population — has attracted a remarkable number of luxury brands.

But as Soho became saturated with an ever-broader range of retailers, from streetwear labels to contemporary brands, some high-end fashion brands deemed its increasingly “outdoor mall” ambiance contrary to the image they were trying to project. And while retailers like Prada and Chanel maintained their presence in Soho, when Balenciaga opened its first New York store in 2003, it followed in the footsteps of Comme des Garçons, which decamped from the south-of-Houston district to Far West Chelsea in 1999, converting a former printing plant near Tenth Avenue into a stark, lunar-feeling boutique.

In a telling turn of the tides, however, Balenciaga is now coming to Soho with not one, but two stores (men’s and women’s) set to open in the coming weeks, across from each other on Mercer Street, a shift that’s indicative of the brand’s new strategy as well as the neighbourhood’s current appeal.

As a result of increased demand, rents in the area are at an all-time record high, while behind-the-scenes dealings and bidding wars between landlords and brands vying for a presence in the successful shopping district are more heated than ever.

In February, Prada agreed to pay $1000 per square foot to renew the lease on its 10,000 square foot, multi-level space that stretches the entire length of a block, from Broadway to Mercer Street, the highest rent ever recorded for a retail store south of Midtown, confirming what Michael O’Neill, a senior director at Cushman & Wakefield, stated in a report released last month: “Soho has largely been driven by some of the world’s most notable fashion and luxury brands, which have created desirable co-tenancy, fuelled increased demand, and resulted in a significant year-over-year increase in rent expectations.”

Indeed, Chris Owles, a principal at Sinvin Real Estate, told BoF that rents in Soho have climbed by as much as 100 per cent per cent since 2007, from an average of $300 per square foot to upward of $600 per square foot on the main arteries of Prince and Spring Streets. Similarly, rents on side streets such as Wooster and Mercer have doubled from about $150 per square foot to close to $300 per square foot on average.

Investors, too, have caught on to the importance of Soho’s retail market, further driving up rents to justify hefty acquisition tags. According to Robin Zendell, a founding partner at brokerage firm Retail Space Partners, three such groups of investors are buying up large swaths of Soho at unprecedented prices and making the rents in the area unattainable except for the most deep-pocketed of retailers.

But what’s driving all the current interest in Soho?

Zendell attributes it to a surge in spend-happy international tourists. Indeed, according to the city’s tourism agency, NYC and Company, in 2012 New York welcomed an all-time high of 52 million visitors, of which a record 11 million were from overseas. And according to a report by real estate investment services firm Eastern Consolidated, these visitors are leading the strongest surge in retail spending growth since the middle of the 20th century, with a huge portion of this spending going into clothing.

Interestingly, the same “outdoor mall” quality that was once considered a drawback is part of what makes the area so appealing today. Affluent residents and visitors alike love being able to “hop-shop” between boutiques while stopping for tea at Keith McNally’s Balthazar or a drink at Fanelli’s, a storied pub on the southwest corner of Prince and Mercer Streets.

Indeed, many successful retail neighbourhoods are anchored by popular destinations and local landmarks, like restaurants and hotels. In northern Soho, more than anything, this role is played by the 20-year-old Mercer Hotel, whose discreet lobby doubles as a meeting and deal-making spot for the city’s creative, fashion and business elites.

In addition, the presence of New York’s first Apple store, opened in 2002 on the corner of Prince and Greene streets, and the presence of several subway stops in the immediate vicinity — including the busy F, 6, N and R lines — bring important foot traffic to the area.

But Soho’s northern edge is by no means the only part of the area that’s booming. In fact, the neighbourhood is segmented into smaller subsections, each with its own character, and each catering to different kinds of brands. For instance, in Soho’s southern section, bordering Canal Street, a stone’s throw from the offices of V and Visionaire magazines, edgier fashion labels like Isabel Marant and Alexander Wang have found an environment more fitting to their brands. Indeed, with its happening art galleries, parties and proximity to Chinatown, this part of Soho retains some of the artsy feel of the area’s early days.

As Alexander Wang’s president Rodrigo Bazan told BoF, “There are more commercial brands north of Broome Street. But south of Broome going all the way down to Canal Street, Soho maintains its original artistic and loft feeling.” It’s perhaps little wonder that Hedi Slimane chose to be closer to this part of Soho, with a location below Spring Street.

Yet another section of Soho, extending eastward from Broadway and crowded around the intersection of Crosby and Howard Streets, has emerged as its own flourishing mini-ecosystem, with a number of important fashion tenants that find the nook’s low-key appeal to be a good fit for their brands’ ethos. Anchored by the pioneering presence of downtown retailer Opening Ceremony, which arrived here in 2002, this is where Jil Sander opened in 2008 and where ethical luxury label Maiyet is set to open its first store.

But while Soho remains irresistible for some brands, not everyone can afford to be here, and a new crop of aspiring retail neighbourhoods are sprouting up in other corners of the city.

Tomorrow, in part three of our series on the shifting winds of New York retail real estate, we examine Manhattan’s hottest emerging shopping districts.