The latest Manhattan Retail Report (first half 2024) from the Real Estate Board of New York (REBNY) paints a complex picture of the current retail landscape. While there are signs of recovery and strong demand in certain areas, significant challenges remain that underscore the fragility of Manhattan’s retail sector. These challenges, which manifest in a variety of ways across different corridors, signal that a full recovery is still a distant goal for many retailers.
Rents Still Below Pre-Pandemic Levels
One of the most telling signs of ongoing weakness is the fact that, despite some year-over-year rent increases, no retail corridor has returned to its pre-pandemic peak rent levels. In fact, rents remain 20% to 30% below pre-pandemic levels across most corridors. This indicates that property owners are not yet able to command the high rents seen before the pandemic, which directly impacts property values. As you can see in our custom analysis above, in the average retail corridor, rents are still about -40% below their peak 9 years ago. Since property taxes are based on the assessed value of a property, and this value is derived from factors such as occupancy and rental income, the current market conditions suggest that property values may have declined. This decline presents an opportunity for property owners to challenge the assessor’s property tax valuation, potentially lowering their tax burden.
Struggles with Larger Spaces and Shrinking Retail Footprints
A notable challenge facing the retail market is the limited pool of retailers seeking larger spaces. While smaller and mid-sized storefronts are in demand, larger spaces are taking significantly longer to lease. This trend is compounded by the broader shift toward shrinking retail footprints, with 69% of leases in the first quarter of 2024 being for smaller spaces. This shift is driven by a combination of factors, including increased costs, the rise of e-commerce, and changing consumer behaviors. For property owners, this means that not only are larger spaces harder to lease, but the spaces that are being leased are often smaller and generate less income. These factors contribute to higher vacancy rates and lower rental income, which in turn can lower property values. This presents a clear opportunity for property owners to challenge their property tax assessments, arguing that the current market conditions have reduced the value of their properties.
Sporadic Leasing Activity on Broadway
Broadway, one of Manhattan’s most iconic retail corridors, is also facing challenges. The report highlights that pockets of vacancy still exist along Broadway, particularly below Chambers Street and on the Upper West Side. These lingering vacancies, combined with the difficulties in attracting long-term tenants, can depress property values in these areas. Property owners in these corridors should consider the impact of these vacancies on their property’s assessed value and explore the possibility of challenging their tax assessments.
High Vacancy Rates in Transit System Retail
The situation in Manhattan’s transit system retail spaces is particularly concerning. Despite some positive developments, such as the opening of new food halls and restaurants, an estimated 80% of retail spaces throughout the transit system remain vacant. The high vacancy rate in or near subway stations reflects a significant underutilization of these properties, which should be factored into their assessed values. Property owners can use these vacancies as evidence to support a reduction in their property tax assessments, aligning the assessed value more closely with the current market reality.
Reduced Retail Spending and Lagging Tourism
Retail spending has also shown signs of weakening, with the U.S. Census Bureau reporting a 1.3% decline in retail sales volume year-over-year for the first quarter of 2024. Inflationary pressures continue to weigh on consumers, particularly among lower and middle-income groups. Meanwhile, tourism, while improving, remains below pre-recession levels, with international tourism still 14% below its 2019 peak. These factors contribute to a softer retail market, which in turn impacts property values. Lower consumer spending and tourism directly affect retail sales and rents, making a compelling case for property owners to review and potentially challenge their property tax assessments.
Retail Shrinkage and Store Closures
Retail shrinkage, including theft and fraud, remains a significant problem for retailers across New York City, contributing to the closure of big-box retailers and pharmacies. These closures and the operational challenges they reflect can lead to increased vacancies and reduced rents, further depressing property values. Property owners should be aware of these trends and consider whether their property tax assessments accurately reflect the current market conditions.
Conclusion
While Manhattan’s retail market shows signs of resilience, the persistent weaknesses cannot be ignored. The ongoing challenges in leasing larger spaces, the inability to return to pre-pandemic rent levels, sporadic leasing activity in key corridors, and the persistent vacancy in transit system retail all suggest that the market is still in a state of flux. For property owners, these conditions offer an opportunity to reassess their property tax valuations. By carefully evaluating the impact of reduced occupancy and rents on their property’s value, owners can make a strong case for a reduction in their assessed value, potentially lowering their property tax obligations.