New York, like every large American city, seems to be in the grips of a retail ‘crisis’.
Empty stores embarrass the prime Fifth Avenue shopping district. Once-great gourmet food emporium Dean & DeLuca just closed all its Manhattan stores. And Barneys faces possible liquidation, which would leave a brooding, 300,000 sq ft vacancy in Madison Avenue’s heart.
But the city’s left-leaning elected officials are pursuing a campaign that would only make things worse. Mayor Bill de Blasio, fresh off a humiliating run for the Democratic presidential nomination that drew the support of less than 1% of voters, is urging state lawmakers to impose a vacancy penalty on landlords with empty storefronts.
Meanwhile, a bill in the City Council would be even more ruinous if it became law. A so-called ‘Small Business Jobs Survival Act’ would effectively impose a form of rent control on commercial leasing, weaken landlords’ hand in negotiating with tenants and all but guarantee tenants a right to renew old leases based on 10- and 20-year-old rents.
No one can miss the dark storefronts in Manhattan and parts of outer boroughs as well. The sight of fashion emporium Henri Bendel on Fifth Avenue and neighbourhood bodegas alike standing empty upend New Yorkers’ faith in the ‘shopping capital of the world’.
Emotions are running high. So many ‘Prime Retail for Rent’ signs have become a flashpoint issue in many neighbourhoods. Many politicians and media observers ignorantly blame only landlords. They routinely say that landlords don’t suffer from unleased stores because they receive tax breaks for lost income – a claim with no basis in fact.
Demonising landlords is ridiculous when online shopping – the ‘Amazon effect’ – has wreaked havoc on bricks-and-mortar retailing coast to coast. New York has another liability: the city’s retail-space inventory has grown by an astounding 20% since 2000, thanks mainly to new construction. The skyrocketing supply occurred even as online shopping as a percentage of all shopping swelled from near-zero to more than 10%. For example, competition from fast-fashion online sites was one reason Arcadia Group was forced to close all its American stores, including a 40,000 square-footer in the heart of Fifth Avenue.
Migration from Midtown
Nobody knows for sure just how bad the retail malaise is. Blocks of dark windows on Broadway in the West 50s are an ugly sight. But much of the appearance of crisis is due to the migration of major stores from Midtown to neighbourhoods that once had no retail to speak of – eg Diane von Furstenberg in the Meatpacking District and Whole Foods Market and Victoria’s Secret on West 125th Street in Harlem.
‘Crisis’ claims notwithstanding, it is not impossible that New York has more stores than it did 10 or 20 years ago. But unlike with office space, the quantification of store vacancy varies wildly depending on the metrics used. Some Big Apple brokers say it is as high as 20% — which is surely exaggerated. Data from the City Comptroller (just above 5%) and the Department of City Planning (just above 9%) seem too low on the other hand.
Whatever the precise count, the push by de Blasio and fellow-traveller ‘progressives’ would worsen things by further complicating an already fraught leasing environment. Who would determine which landlords were gouging and which were doing their best to attract store tenants?
“‘Prime Retail for Rent’ signs have become a flashpoint issue in many neighbourhoods”
Both the mayor’s and the council’s punish-the-landlord agendas are based on premises that have been debunked by City Hall itself. The City Planning Department, whose chairman was appointed by de Blasio, found last summer that the “reasons for storefront vacancies are many and varied”; the unrealistically high rents cited by de Blasio were only an occasional factor.
In September, an audit by City Comptroller Scott Stringer similarly blamed the proliferation of dark storefronts on increased inventory, onerous city and state regulations and on the city’s own greed in raising property taxes, a portion of which must be borne by store tenants.
The property industry has already begun to deal with retail availability in the most market-driven, common-sense way: asking rents plunged nearly 20% last year, according to the Real Estate Board of New York lobbying and research organisation. But such facts will not stop those who deplore capitalism and the free market from chasing the wrong solutions – and making things worse.
Steve Cuozzo is a real estate columnist and contributor to the New York Post