Who killed Manhattan retail?

E-commerce did not kill retail in Manhattan, landlords did.

And they did it by losing touch with reality. By putting numbers in place of common sense and by taking the role of supervisor rather than partner.

Between 2010 and 2014, the average retail asking rent in Manhattan more than doubled. Doubled! How many businesses do you know can more than double their sales in a 4 year period?

As terms expired and new/existing tenants looked for space, they were faced with the harsh realization that rents had become out of touch with their own reality. Meanwhile, financial threats in the form of e-commerce, Paid Sick Leave and minimum wage increases also put downward pressure on what profit tenants could reasonably expect to make, not only today, but 5-10 years from now.

E-commerce did not single-handedly cause Manhattan’s retail collapse, but rather, it exasperated an already toxic situation.

The market has felt the blow with asking rents down nearly 20% on average year-over-year. Availabilities have reached up to nearly 35% in some areas. Landlords are now scrambling to offer generous concessions while simultaneously accepting shorter lease terms, wreaking havoc on net effective rents.

As the market fights to reach an equilibrium, tenants are now slowly entering the market- but in a different way than before.

Tenants no longer value their brick-and-mortar presence for the store’s income alone, but rather the impressions gained from having a physical presence at all. As a result, storefronts have evolved into a marketing tool just as much as a financial one.

Landlords will have to accept and adapt to this change. Footprints will be smaller, tenants will be different and lease terms will be shorter.

And as retail reinvents itself in Manhattan, so will the mentality of landlords. While no one can blame property owners for wanting to maximize asset value, at what point are you hurting your tenant- and ultimately, yourself?

Amidst all the chaos, a valuable lesson is gained:

The relationship between tenant and landlord is a partnership just as much as it is a contract.

If either party wishes to be successful, synergies must exist at all levels to ensure the ship is sound as it navigates the uncertain and rough waters of the future.

Written by Anthony D'Amelio, Associate at Cushman & Wakefield, Manhattan