Retail Real Estate: Massacre on 34th Street

Let’s see: Kim Kardashian had to write a $1.3 million check to the SEC, Donald Trump is suing yet somebody else – CNN in this case, LeBron has bought a professional pickleball franchise and oh yes, midtown Manhattan retail real estate is practically a ghost town.

Yup, that about sums up the situation and curiously, it’s the last item in that list of news that will probably have the most lasting effect on its current situation.

Even as workers return to offices in most areas of the nation and retail real estate operators report growing interest in their properties in cities and suburbs around the country, Midtown Manhattan remains an outlier with vast numbers of empty storefronts, even in what had pre-pandemic been robust shopping districts where “For Rent” signs were a rarity. Many of the former tenants in these spaces depended on tens of thousands of office workers for their business, not necessarily local residents. A secondary source of customers were tourists who also are just starting to return to earlier levels and in the case of the Chinese haven’t returned at all.

Perhaps the situation is most dire in the Herald Square neighborhood, anchored by the massive Macy’s flagship but also home to many other major retailers including Target, Sephora, H&M and Urban Outfitters. It also once housed a vertical shopping mall in the former Gimbels space who’s most recent tenant was JCPenney but the building is apparently being converted into commercial office space save for one or two ground floor spaces. It is also a central transportation hub for commuters and visitors alike, plus it includes the Empire State Building, a key tourist hub.

The Real Deal recently report that the retail vacancy rate in the district is 42.4 percent. “Madison Avenue’s 27.3 percent vacancy between 57th and 72nd streets is a distant second, according to Cushman & Wakefield data.” It reported that “the number of available retail spaces along the 34th Street corridor in Herald Square last quarter grew to 20 listings — up 5.3 percent quarter-over-quarter and 81.8% year-over-year.”

Things have gotten so bad in Manhattan that the New York City Council just passed a bill requiring retail property owners to more diligently report vacancies in order to compile a more accurate database that can be used by the city and developers.

Dan Biederman, head of the 34th Street Partnership, a local civic organization, said his group isn’t worried by all of this. He told Crain’s, “When the economy is closed down by the government, the retail district is going to suffer the most. A couple of tenants leave — the weaker ones. Other ones come in. We’re not alarmed. Those spaces are going to get filled.”

Eventually they most probably will but the office space needs to be filled first and that appears to be an equally as difficult task. Even tougher than understanding the appeal of Kim Kardashian.

Until that time the neighborhood might better be described as Unheralded Square.

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