New York City’s Brick-And-Mortar Stores Have Reached A Tipping Point

by MR Magazine Staff

West Village chef Anita Lo is closing her restaurant in May because she no longer sees a way to make a profit, not when her landlord has passed along an $80,000 increase in property taxes over the past two years. Roy Ennacheril, owner of an Upper West Side housewares store, is also closing up shop, citing online competition and an expected huge rent hike as his reasons. Last week Crain’s sympathetically looked at the stories of restaurateurs and small retailers whose businesses are imperiled by increases in the minimum wage, competition and especially rent. Soon reporters will be writing similar stories about the landlords. The economics of retail real estate are about to change dramatically. Real estate markets work differently from other sectors of the economy. Many commercial leases are long-term, with 10 years being typical. Owners can increase rents if taxes and operating costs rise, but annual increases in the base amounts are small. In good times this means store owners face enormous increases when leases expire. Few small outfits plan for this. Because leases are long, landlords hold out for the highest rents they think they can get and react slowly to softness in the market, as is happening now. Cushman & Wakefield reports vacancy rates are up in every Manhattan retail corridor. While asking rents have declined somewhat, experts such as Cushman advise landlords that all will be well soon. Lower rents will lure retailers to start taking empty spaces, the company says. After all, the city’s economy is strong, and such a scenario has played out many times in New York. Not this time. Read more at Crain’s New York.