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Manhattan retail rents dip but remain near record highs

Fifth Avenue New York
Source: Bob Briscoe

Retailers are finally catching a break on sky-high Manhattan rents, though the price for occupying space there remains near historic highs.

Following two years of increases that sent the borough's retail rents to a new peak, the going rate for space has slipped for the second straight quarter.

According to a new report by CBRE, the average asking rent in Manhattan fell 3.9 percent from the second quarter, to $917 per square foot. That represents a 5.7 percent decline from the prior-year period, when the average rate for ground-floor leases was $973 a square foot.

The contraction comes amid a mild slowdown in international tourist spending and a glut of supply. It also comes as retailers are seeking to adjust their store fleets — in many cases shrinking them down — in the e-commerce era.

"Eleven of the 16 retail corridors tracked by CBRE saw average asking rents decline year-over-year — likely a reaction to an unsustainable run-up in rents through 2015," the firm's research arm said in its report.

Still, asking rents remain near historic highs on most Manhattan streets. Even the luxury shopping stretch along upper Fifth Avenue, where rents declined 15 percent on the year, still commanded a city-high $3,138 per square foot.

Such exorbitant costs have led to an oversupply of space on the strip and throughout many of the borough's other thoroughfares, according to Cushman & Wakefield.

In a separate report released last month, that real estate firm said rising availability rates in nearly every part of Manhattan has "created uncertainty in the market, while new stores become available daily, adding new supply."

"It may be some time before velocity picks up and available retail space is absorbed faster than it becomes available on the market," according to the report.

Only the Upper West Side and Flatiron District had fewer available spaces during the third quarter compared with the prior year, Cushman said.

As for the price to occupy properties, the largest increase came from downtown Manhattan. The average asking rent in that area increased 20.6 percent year over year, boosted by the opening of Westfield's World Trade Center mall and the new Saks Fifth Avenue at nearby Brookfield Place.