NEW YORK, United States — Nestled on Madison Avenue just out of view from Chanel and hardly 100 yards in front of the tallest residential building in the world is Rebag’s modest second New York store. The luxury handbag resale company opened the space in April — a feat that would not have been possible two years ago, when the neighbourhood's rents were near record highs.
On a Tuesday afternoon, the store is well-populated with teenage tourists ogling rows of Chanel Double Flaps and Midtown office workers in kitten heels rapt before a wall adorned with Birkin bags in every colour of the rainbow.
Many of the brands on display can be bought new just a block away on Fifth Avenue, where Louis Vuitton, Gucci and Hermès emporiums anchor the world’s most expensive stretch of retail real estate. Four-year-old Rebag’s neighbours on Madison include Fendi and Coach — though about a fifth of the retail space in the area is empty, according to data from Cushman & Wakefield.
Rebag is one of a number of small, online brands taking their place alongside the luxury establishment in haute shopping districts like Fifth Avenue and Melrose Avenue in Los Angeles. Until recently they would have been priced out of these areas. But landlords, who have seen vacant storefronts proliferate as the rise of online shopping triggers wave after wave of store closures, are increasingly willing to cut deals on even the most tony real estate.
In the last two years, retail rents have fallen as much as 30 percent in parts of New York, said Garrick Brown, the head of retail research, Americas, at Cushman & Wakefield. Fifth Avenue rents saw an 11 percent drop in the past year. Meanwhile, in cities across the pond, the retail real estate market has remained fairly stable — especially areas that house luxury labels — supported by wealthy tourists from Asia and the Middle East.
In New York, leases are also getting shorter, with landlords willing to forgo the usual 10-to-15-year terms to avoid letting a space sit empty. Rebag, for one, secured its space via a “crafty, short-term” lease, said founder Charles Gorra. French eyewear brand Vuarnet, shoe brand Margaux and lingerie start-up Lively all opened new stores last month in Soho and the West Village. Larger brands are taking advantage as well; Gucci signed a two-year lease on a Soho store that opened earlier this year, according to The Real Deal.
Real-estate brokers say it’s too soon to call a bottom to the retail market. But while store closures and bankruptcies continue to sweep across traditional retail, leasing activity is on the rise. And even though the new class of tenants typically need less space — and may not stick around as long — the market outlook is cautiously optimistic.
“We’re seeing an uptick in leasing… It’s very fertile ground,” said Jeffrey Roseman, the retail vice chairman at brokerage Newmark Knight Frank. “A new world of retailers that didn’t exist five to 10 years ago are taking the place of Toys R Us and Payless.”
Many new brands, including Everlane and Cuyana, first tested the waters in New York with pop-up stores before opening permanent locations. Often the goal with pop-ups is to work out the kinks in operating a physical store and get the word out about their brand, rather than drive sales.
As young brands like Anine Bing and Veronica Beard are finding a physical footing in New York, they’re also opting for the side streets rather than the main drags: In Soho, they’re picking Greene Street instead of Broadway. In Flatiron, it’s 17th Street over Fifth Avenue. In Midtown, a retail tenant can get a space for $300 per square foot on 55th Street — that’s one-tenth the market price of the fanciest blocks on Fifth Avenue.
While most leases are still long-term, landlords will accept short-term and pop-up arrangements if they fear their space will otherwise remain vacant for months or years.
“Landlords are looking for place-holding tenants,” Brown said. “They are [embracing] the idea of doing short-term deals until the market recovers, so they’ll charge cheaper rent for one- or two-year deals.”
Some cobbled corridors of Soho even boast cult followings. Howard Street, for instance, a four-block stretch that nears Chinatown, has been dubbed the mecca for streetwear-obsessed teenage boys, thanks to hypebeast-friendly inhabitants like Stadium Goods, NikeLab 21M and Palace Skateboards.
“Today with social media, it’s less imperative to be on a main street and break the bank,” Newmark’s Roseman said. “But I don’t think that’s why tenants are forgoing Broadway for the great cobblestone side streets, which have a more fabulous feel.”
On weekdays in the summer time, in fact, the side streets off Broadway and Fifth Avenue see more foot traffic than the marquee thoroughfares, according to data from location technology firm GroundTruth.
Athleisure and street-style retailers like Stadium Goods, according to Roseman, are among the most active tenants today, along with discount big boxes, boutique fitness studios and cosmetics stores. In May, Puma returned to Manhattan after closing all of its stores years ago with a giant space on Fifth Avenue, where asking rents average $2,775 per square foot.
That’s not to mention the buzz in non-traditional retail neighbourhoods like Williamsburg and Dumbo in Brooklyn, which house the “new retail concepts of tomorrow” with spaces that mix art galleries, bars and boutiques, according to Cushman & Wakefield.
“Now more than ever there’s a whole new world of entrepreneurial companies that have built a better mousetrap,” Roseman said. “All these companies are driving the market to take space.”