Bleecker Street’s Swerve from Luxe Shops to Vacant Stores
nytimes.com
nytimes.com
Commercial leases are typically quite long; 10 years is quoted in the article.
Landlords don't want to be locked into a price for 10 years that could be a momentary downturn.
When you look at it at these time horizons, being vacant for 1 year and renting for your asking price is as good as giving someone a 10% discount to start a lease today.
I do think there should be a blight tax though to encourage real estate developers to find a short term use for the space.
Only big slow companies want long leases, and only big companies can afford the bloated rent. I don't agree that the root issues is the duration of the lease.
Not that price anchoring isn't real, and landlords are often shitty, but I doubt there are plenty of businesses interested in a short term lease for a 10% discount.
"Arleen Bowman Boutique" had a 10 year lease and wasn't exactly a big business, so I don't think that big businesses are the only ones who want long leases; I think your comment says more about the desirability of the real estate that people will deal with imperfect conditions to get a deep discount.
The space cost them $18k for the month (which is low, considering the area), and the only reason they got that price is because a big company backed out on their pop-up store deal.
Not because they have too much money, but because these tiny deals are probably a worse deal for them.
The policy responses for "landlords have too much money" and "landlords are acting rationally by leaving their lots vacant" are quite different.
99 cent stores, beauty supply stores, and Halloween supply stores work this way too - easy move in/out, generic and cheap merchandise used by a wide audience that doesn't want to buy online, and so they can take advantage of short-term leases.
People from 1980s are still alive. They can take the subway, they don't need teleportation. ;)
Please put this on a t-shirt.
EDIT: my coworker, who lived in the city in the 80s, does in fact take the subway, but only because it's hard to hail a taxi out in Queens.
I meant if one had last visited Bleecker in 1980s and never visited it again until today, then....
These core local businesses unfortunately got priced out a long time ago.
A flaw in our system of real estate is that there doesn't seem to be a very good mechanism for rewarding the businesses that help increase the value of a neighbourhood. Businesses put in the sweat equity into creating a great business that draws people into the area and makes it fertile ground for other businesses and redevelopment, and their reward is that their rent spikes and they're forced out.
It's further compounded by sales intra-lease where the new buyer has modeled the rent once the current lease is up in order to justify the sales price.
Having a tax linked to business revenue is contrary to the spirit of land value tax.
>"Indeed, over the past year, Mr. Sietsema, the senior critic at Eater NY, has watched with mild schadenfreude but greater alarm as his neighborhood has undergone yet another transformation from a famed retail corridor whose commercial rents and exclusivity rivaled Rodeo Drive in Beverly Hills, Calif"
I'm not fan of what happened to Bleecker Street but I find it amusing that an employee of Eater which promotes conspicuous consumption in the food arena(celebrity chefs, "where to eat now", etc) has "schadenfreude" for conspicuous consumption in the high-end retail fashion world. There's a slight bit of hypocrisy in that. Trendy restaurants and trendy fashion boutiques seem to come to neighborhoods in lockstep. Bridge and tunnel crowds usually come into the neighborhood to both shop and eat. The metamorphosis of Bleecker Street seemed to begin with Magnolia Bakery and cupcakes in the early 2000s as mentioned in the article. And Eater has certainly done its part over the years in promoting the cult of Magnolia Bakery including pieces by Mr. Sietsema himself.[1]
For some reason foodie culture seems to view its version of rampant consumerism as being a more noble pursuit.
Also see the following from Eater:
https://ny.eater.com/2017/5/18/15504272/west-village-girls-n...
https://ny.eater.com/2017/5/25/15528706/greenwich-steakhouse...
https://ny.eater.com/2016/7/14/12193232/20-years-of-magnolia...
More importantly, he's is one of the biggest champions of non-conspicuous food consumption in the New York food scene.
Here is a list of his Eater articles fetishizing things like donuts, Croque Monsieurs and porridge as well as articles with titles such as "How to eat like Anothony Bourdain, "How to do a Pho Tour" and "Where to get the Best Dim Sum."[2]
Can you explain why you don't believe such articles promote conspicuous consumption?
[1] https://www.villagevoice.com/2011/01/28/cops-love-magnolia-b...
And that's the difference between ordering a bowl of Pho and "Taking a Pho tour" or simply grabbing a slice of pizza from your corner joint instead of trying to "Eat like Anthony Bourdain"
It's just that mainstream NYC food criticism is so saturated with Eleven Madison Park, $200 steaks at 4 Charles and $24 dry-aged burgers that I graded Sietsema on a curve.
Chipotle wanted to open a restaurant in the Lower Haight right next to the MUNI station; it got voted down, and it was no particular loss to me since the Mexican restaurants around there were far better anyway, but that location was empty when I moved there and only now, 6 years after the original business closed is it being torn down to build apartments.
And I don't think anyone is claiming commercial rents in SF are cheap; the best you could say is "maybe it would be worse if we removed this one rule and kept all the others"
http://sfist.com/2017/05/15/blue_bottle_blocked_from_opening...
Clearly this is a stage beyond 'rich people buying up lots of home properties to keep vacant as an investment while many go homeless'. Now it's commercial properties being treated as this sort of 'crystallized value' and kept in stasis. I expect this to continue. Unused pristine property in key locations ought to hold more value than using it for sub-optimal purposes (I'm voicing the view of capital here, I don't personally hold to this belief)
If crimes against capital become a thing, could they merit the death penalty? Then a human daring to cross accumulations of capital far beyond what any human's existence could represent, could be put to death for committing a capital capital crime :)
It seems that both the most cynical capitalists and the most bleeding-heart leftists value abandonment above all other uses of urban property, and the world is increasingly split between them. The future is not looking good.
When the rent went up 6-10 fold, they could refinance and borrow against the new inflated equity to secure more investments. Renting out at a substantially lower value would negatively impact this financing.
It's a better deal for them to sit empty at a potential rent of 35K/mo than it is to lower the rent and have to repay/refinance loans.
There can also be tax considerations that offset gains from other properties, further reducing the incentive to rent out.
Lease ends Dec. 30, 2016 -> Immediately rent out for $10k/month to a mom and pop -> By Dec 30, 2024 total rent paid = $960,000
vs
Lease ends Dec. 30, 2016 -> Wait two years for an international fashion label that wants a vanity store -> rent out at $35k/month -> By Dec 30, 2024 total rent paid = $2,520,000
I'm looking forward to a cool off in the CRE space and a slightly smaller one in the residential space.
[0]https://en.wikipedia.org/wiki/ABC_No_Rio#Recent_legal_strugg... [1]https://en.wikipedia.org/wiki/C-Squat#Founding
Trying to widen it by reading Caro's Power Broker and Jacobs's Life and Death of American Cities.
That being said, I've never really understood the area of the West Village west of Seventh. As far as high end fashion stores go, Meatpacking for awhile a bit of a reputation for this but really it seemed to me that if you wanted this kind of fashion, that was what SoHo was all about (on Prince and Spring streets primarily).
Could it be that fashion has simply moved there? Was SoHo as big for this 10, 20, 40 years ago as it is now? This I don't know.
The areas of Manhattan aren't static, this much I know. Over the years the commercial heart, now in Midtown, has been drifting north (we're talking over 200+ years).
Now this part of the West Village does have reasonable proximity to what was the Fashion District (above 23rd). Could it be that the end of that textile industry is responsible for the shift?
Come to think of it, the restaurant culture downtown has probably been drifting east. Like I compare what's in the West village and food-wise at least the East Village is so much better. The West Village seems far more of a sleepy residential neighbourhood now in comparison.
Also remember that Williamsburg just across the East River has boomed in recent years, probably as people get priced out of the East Village.
So maybe that's it: people are simply priced out of the West Village?
I knew an Israeli guy at work who told me about gentrification in Tel Aviv. There's apparently some popular neighbourhood that's dead now as it's super expensive and the rich who buy there don't live there so it's dead. That's just what he said.
I come from Perth, Western Australia and can tell you that the lively areas of the city 20+ years ago have really changed. Northbridge is still there and still seedy. But Subiaco, once a lively cafe strip at nightspot, is now pretty dead.
Gentrification seems to be a bit like algae. It thrives on the "oxygen" of what makes these areas popular to begin with but ends up starving everything else out then itself.
Perfect description of Austin, TX today versus say 1965-1990.
Living so close to NYC all my life, growing up I'd often visit the Village; and Bleecker street was always on the list of destinations without hesitation. Admittedly, this was decades ago. But, when i visited the Village earlier this year, it was quite sad. Bleecker and other (normally more active) streets were so desolate, and their buzzy mixture of bohemia and eccentric stylishness was lacking. I felt like i was visiting a Disney-ified version of some way-past-its-prime neighborhood. Sometimes it feels like things have too much shine, and not enough real, earthy truth.
I've always thought that was a really great way to phrase it. Its funny, but also works on a surprisingly large number of levels, rather intuitively.
landlords are happy to let leases expire, jack up the rent and look for the next 10 yr tenant. usually a 2-3 % annual escalation is added to the lease.
http://www.foxbusiness.com/features/2017/05/18/never-mind-fe...
(originally printed in the WSJ)
The drug chains at least also functionally serve as convenience stores as well and, in my experience, they do get quite a bit of foot traffic. I actually find it a bit inconvenient when traveling internationally that this sort of store doesn't really exist--with the somewhat exception of the UK.
Edit: I guess you meant Commercial Real Estate?
Also, landlords can't take all the blame since you can't have every business be a restaurant. Online shopping deserves some of the blame. And the shops that do exist are just glorified catalogs, the cost of which is probably part of the companies' marketing expense. Thus, only big name luxury retailers can afford to rent these spaces.
As for the article, I think they called it: high rent blight. Late stage gentrification. This is what happens when even the rich can't afford to be there. The neighborhood needs a reset.
Edit: adding quote from the original article -
> At a time when shoppers are buying online and fashion brands across the industry are hurting, “the challenging business environment makes it less interesting to do vanity locations,”
Same phenomena seems to be happening to prime retail locations globally - take a drive down Oxford St in Sydney for example. Interested in what the solution is to clear the market on all this CRE, you can see a lot of startup/coworking spaces taking advantage of the vacancies in these initial stages.
This is not a product of falling demand - but rather rising prices, and landowners willing to endure extensive vacancies to prevent the market price from dropping.
Increased interest in the area raised prices past the point of affordability for businesses. In a normal market this would result in price drops until landlords can find renters.
What we are seeing instead is a concerted effort to maintain pricing through willingness to let storefront sit empty. Instead of lowering rents to attract tenants, landlords are simply tolerating vacancies.
> "who wants to go to SOHO to buy clothes when you can do it online!"
Bleecker St was home to high end fashion boutiques - a segment of retail that is still doing well in brick and mortar, and more resistant than other retail niches to the effects of ecommerce. The idea that everyone went online instead I don't think holds water.
Importantly also, even if clothiers are increasingly online, other types of retail businesses (food? Fitness?) would step in to fill these spaces. This hasn't happened.
>"you can see a lot of startup/coworking spaces taking advantage of the vacancies in these initial stages."
This is precisely what isn't happening. Rents are too high for broad categories of businesses (including coworking spaces) - but rather than lower rents and get these spaces rented, landlords are holding firm instead.
> At a time when shoppers are buying online and fashion brands across the industry are hurting, “the challenging business environment makes it less interesting to do vanity locations,”
I think it would be folly to think that there's a static or growing level of demand in physical retail relative to online shopping - even at the high end.
I don't reasonably doubt that someone will be able to turn a profit with the increased rents, or that landlords don't want to drop the rent for a multitude of reasons (financing requirements included) but my point is that we're in a period where the sectors which typically could afford the high rents in places like these now can't.
And my statement holds just as much for NYC as it does for other cities in the world - I was simply providing the Australian example as support. Remember when Virgin could afford renting half of Union Square to sell physical music? After it was empty for a while (much like Bleecker St) the DR and banks stepped in with a business which could afford the rent.
That's not the effect that's happening here. In fact, a number of brands that have built their reputations online have recently (in the last few years) opened up brick-and-mortar stores in SoHo, and done quite well. Warby Parker and Birchbox are two examples.
The problem, as the sibling comment notes, isn't that people don't want to go to brick-and-mortar stores when they can buy clothing online. The problem is rather specific to New York (and particularly Manhattan) real estate, which is why we have the paradox that brick-and-mortar stores along some streets are closing and staying vacant, while their competitors are opening up new (successful) stores literally two blocks away.
That might be true for some male demographics, but clothing is still very much a try-and-buy experience for everyone else. People who drop several hundred to thousands for an outfit aren't going to do it online anywhere near as often as in person at a boutique.
As others have noted, the demand is still there, but rents have gone so insanely high that even these rarefied boutiques can't hack it.
The rent will, eventually, correct itself. A lot of rich people are going to lose money in real-estate and they deserve to. Hopefully more normal business can move back in-- and Magnolia Cupcakes were nothing to write home about anyway, they were just freaking cupcakes for christs sake.
Plenty of people pay hundreds or thousands of dollars online for single items, largely because of the rise of free returns which make it risk-free to try the item on.
Not to say everyone prefers online shopping - my wife certainly doesn't, but I would want to see some actual stats saying high end shoppers prefer retail at a greater rate than low end shoppers; I don't expect the correlation to price point to be as strong as to whether they have free return shipping :)