The Real Deal New York

What’s in store for Brooklyn retail?

Brokers say borough hungry for new shops but some national chains still tentative

October 03, 2008
By Melissa Dehncke-McGill

 
While brokers boast that Brooklyn would be one of the largest stand-alone cities in the country, convincing retailers to open stores there is not an easy feat.  Though the borough is in the midst of a retail makeover (look no further than furniture giant Ikea coming to Red Hook for evidence of that) and Target is rumored to be expanding there, real estate insiders say wooing the big national chains that are used to paying Middle America rents is still hard work.

Nonetheless, most say that the Home Depots, Urban Outfitters and American Apparels of the world will thrive in the coming years and that independent, mom-and-pop hardware and clothing stores will be flailing to keep their heads above water.

In The Real Deal’s Q&A this month, brokers said places like Downtown Brooklyn, Williamsburg and Park Slope’s Fourth Avenue, where new residential development is under way, will see the biggest gains when it comes to new retail openings in the borough in the next few years.

But they said that Brooklyn’s sister borough, Queens, has far more retail with its mega-mall Queens Center and more plentiful neighborhood shopping options. And, they noted that while per-square-foot rents are on the rise, they will never catch up with Manhattan. Others noted that while H&M is opening a new store in the Fulton Mall, department stores are still reluctant to sign leases for Brooklyn space and high-end, Madison Avenue designers are not scouting for locations. And, they said, there are plenty of areas of Brooklyn like East New York that are still lagging with rents as low as $10 to $15 a square foot. For more on retail vacancies, big box versus mom-and-pop and expected retail growth, we turn to our panel:

Robert Greenstone chairman and CEO, Greenstone Realty

What is the biggest challenge in getting retailers that have traditionally looked to Manhattan to consider Brooklyn?

The biggest problem is perception. Retailers, and to a large degree retail brokers, think Brooklyn is mostly low-income housing, and they bring all their preconceived ideas, which they can’t see past. Manhattan brokers either won’t give Brooklyn the time of day or aren’t interested in learning about the market. It amazes me. Retailers have to understand that Brooklyn has buying power.

What kinds of new retailers are showing the most interest in Brooklyn?

Independent, mom-and-pop-style stores will continue to open in Brooklyn because it’s more affordable than Manhattan. CVS and Walgreen’s would open more stores if the right spaces were available. H&M, American Apparel, Brooklyn Industries, Finish Line — these are names that come to mind. In Williamsburg, there is Triple Five [Soul] and so many great funky stores and restaurants.

What kinds of retailers are showing the least interest?

Department stores. Obviously there’s a lot that goes into finding the right location for a department store, such as land, parking, access and economics — but with Macy’s on Fulton Street cranking out sales of nearly $1,000 per square foot, one would imagine that more department stores would see Brooklyn as having more potential than someplace in Wisconsin. Target is right in targeting the boroughs. Costco and BJs also.

What segment of the retail market in Brooklyn — big box, independents or local chains — is faring the worst?  

If there was a weakness to the Brooklyn retail landscape, I’d have to say it is that there aren’t enough large properties on the market that lend themselves to retail. And because parcels are typically small, they are owned by individual owners who lack a clear plan for their property. Property owners tend to think only about achieving certain rent numbers and not about upgrading and renovating their retail spaces … When times are good, the mediocre retailer is given a free ride. Not so today.

What sort of per-square-foot retail rents are you seeing in the area of Brooklyn that you work in?

In Williamsburg, Greenstone Realty is leasing the Edge, which has 60,000 square feet of retail space. Asking rents up and down North 6th Street are around $100 per square foot. However, asking rents at the Edge are south of that. Douglaston Development, the landlord, is more interested in the right tenant mix than the last nickel — which I believe is the right thing for the project. Specifically, we’re interested in great, funky cafés, a fabulous bakery, restaurants and apparel stores, and a serious gourmet food market. By comparison, most of the spaces on North 6th Street require extensive renovations to make the space retail friendly. Some retailers in the area report achieving sales in excess of $1,000 per square foot.

How does that differ from one, two and five years ago?

Over the past few years we’ve seen rents escalate; however, not nearly at Manhattan’s pace.

There was a study a few years ago that found that Brooklyn was “under-retailed.” Is that still the case?

Nationally, there’s 36.4 square feet of retail space per capita. In Manhattan it’s 52.2 square feet. But in Brooklyn, that number is only 10.8 square feet per capita. I see the most growth and activity coming to areas whose look and feel most closely resembles Manhattan, meaning Downtown Brooklyn and Williamsburg.  

Frank Terzulli
executive vice president, Winick Realty Group

What segment of the retail market in Brooklyn is faring the worst?

The independents. Like any place else, once the national and regional chains move in, the little local guys get hurt. Hardware stores have to compete with Home Depot. You see that on the Upper East and Upper West Side, and you are seeing that in Brooklyn as well.

What kinds of retailers are showing the least interest? 

Manhattan retailers geared toward the tourism industry and Madison Avenue; high-end retailers are not going to move into Brooklyn.

What sort of per-square-foot retail rents are you seeing in the area of Brooklyn that you work in?

Retail rents [throughout Brooklyn] are anywhere from the mid- to high-$30s to $200 a square foot, depending on where you are. On streets like Fulton [in Downtown Brooklyn] or Montague [in Brooklyn Heights] where they are getting $150 a square foot, some landlords are pushing for $200 a square foot. The Brooklyn gap in rents at the high end is catching up with some of the average rents in Manhattan.

What are the biggest selling points being used to pitch Brooklyn?

[While rents are catching up], they are and probably always will be lower than Manhattan.  We are getting a similar residential base with much less rent, but income levels are similar to the Upper East Side, Upper West Side or Battery Park City. A residential base with similar demographics — that’s what the drugstores and banks look for.

J.D. Parker regional manager of Brooklyn office, Marcus & Millichap

What is the biggest challenge in getting retailers that have traditionally looked to Manhattan to consider Brooklyn?

Showing retailers the demographics as well as the diverse locations that are available. In the last 36 months on the macro level, Brooklyn turned the corner in terms of being able to attract larger national tenants. Brooklyn is stigmatized [by those] not from New York. I don’t know what it is — crime has diminished, but it is a difficult place to do business. It is not an easy place to get in and out … [but now] retailers want to capitalize on the market in Brooklyn.

What segments of the retail market in Brooklyn — big box, independents or local chains — are faring best and worst?

Big box, local and national chains are doing best. Independent mom-and-pops are by far faring the worst.

What sort of per-square-foot retail rents are you seeing in the area of Brooklyn that you work in?

The lease for Yofiore, a yogurt store on Court and Remsen [near Borough Hall] for approximately 600 square feet was $258 a square foot. That’s the high end.The Fulton Mall leases in the $100 to $150 per-square-foot range. The new lease for Ricky’s at 191 Bedford Avenue was signed at $150 a square foot. From Fulton to East New York we are seeing places renting at $10 to $15 per square foot, which is the extreme low-end.

What about vacancy rates in light of the economic slowdown?

The farther you get from the subway, the more retail drops off. Older retail corridors where rezoning didn’t occur, like Utica Avenue and Nostrand Avenue, the foot traffic isn’t there. Spaces are sitting vacant because there is no market. Broadway has seen revitalization; apartment rents are strong near the subways and as a result retail rents follow suit.

Which parts of Brooklyn are you expecting to see the most retail growth in the next five years?

The Fulton Mall will change dramatically after the Albee Square project is completed. The Bedford Avenue corridor from Broadway to North 11th Street and McCarren Park will improve dramatically and rents will rise. On Atlantic Avenue from the docks to the Ratner project to Flatbush and a few blocks beyond, we’ve seen a tremendous run-up in the last 12 months. It will rise as new development and condo projects come online. Smith and Court streets will continue to improve and rents will rise. Also, 86th Street in Bay Ridge, Kings Highway, Church Avenue and Flatbush will continue to improve.

What are the biggest selling points being used to pitch Brooklyn? Discounted retail rents? Larger spaces?

It is an improving demographic with a large student population, increasing tourism and a lot of hotel units coming online. There aren’t the large spaces in denser areas, but in South Brooklyn — Gowanus and further south, there can be success. For example, Ikea is seeing success.

David Tricarico director of retail services, Cushman & Wakefield

What is the biggest challenge in getting retailers that have traditionally looked to Manhattan to consider Brooklyn?

The challenge is the big box or the size of store layouts in the neighborhoods they desire. It is not fair to compare small chains to Manhattan. It is Petco, not Prada, in Mill Basin.

What segments of the retail market in Brooklyn are faring best and worst?

Big box and local chains [are doing best]. The independents are faring worst because the big chains are moving in. They are getting hurt by category killers; the local hardware store has to compete with the Home Depot. The local grocer has to compete with Costco and Fairway.

What kinds of new retailers are showing the most interest in Brooklyn? 

Housewares and home furnishings are looking around. There is a lot of tire kicking.

What about vacancy rates in light of the economic slowdown?

Vacancies are similar to Manhattan in that the good product remains good and the bad product is not rented. Rents are reasonable in areas that are being gentrified like Downtown Brooklyn, where there is a lot of stuff planned and there is a lot of new construction, though there are not a lot of takers. It’s going to be fantastic in five years, but in the short term it’s tough.

Which parts of Brooklyn are you expecting to see the most retail growth in the next five years?

Red Hook and Downtown Brooklyn. Once strong sales are reported from IKEA in Red Hook [there will be more growth there]. It’s an area for large formats and high sales volumes. Retail growth is a herd mentality. Downtown Brooklyn will be quicker because it already has built a lot of new construction. The bigger box stores take a lot longer to do.

There was a study a few years ago that found that Brooklyn was severely “under-retailed” when compared to its population. Has this changed?

It is unfair that Brooklyn’s sister borough Queens has a bit more retail. But that is because Brooklyn is older and it didn’t have the space for the stores. There’s no Queens Boulevard in Brooklyn. Also, Queens has one of the best regional malls in the country, Queens Center. And there are little pockets like Bayside; each neighborhood has its own strip. Brooklyn shoppers go to small supermarkets and pharmacies. They are looking for better quality retail like an H&M, which they may be getting soon.

What are the biggest drawbacks to pitching Brooklyn?

In the smaller areas like Park Slope or Smith Street, some of these buildings have been owned for [years] and they don’t want to talk to brokers. They would rather make a deal with a local retailer than bring a quality tenant like a fashion chain such as Urban Outfitters. It’s a lot speedier for them — so it is a real challenge. The educated owners, like in Downtown Brooklyn, are professional landlords. You also have [industrial buildings], and it’s a challenge to talk to these guys because it’s hard to convince them and deal with an owner who doesn’t have a computer.

Albert Laboz chairman, Fulton Street Mall Business Improvement District

What is the biggest challenge in getting retailers that have traditionally looked to Manhattan to consider Brooklyn?

The challenge is trying to convince a retailer or big box unfamiliar with New York City that they could have a $100 million store instead of a $10 million store. As an example, I was negotiating with a major retailer for a 150,000-square-foot space at a rent of $48 per square foot. We negotiated for 11 months and even got to the lease stage when they came back and said they could not justify the rent. These big box [stores] are used to paying $5 a foot and having a store that does $8 million a year [in business]. They don’t know what it is to have a store where you pay $50 a square foot and do $100 million a year. These retailers often are the anchor of a strip mall in some suburban location, and as an anchor they pay $10 to $15 a square foot and have a percentage rent clause. In other bigger cities, rents are in the $20 to $25 range.                                              

What sort of per-square-foot retail rents are you seeing in the area of Brooklyn that you work in? How does that differ from one, two and five years ago?

The rents on Fulton Street are anywhere from $125 to $250 a square foot, depending on size. They remain basically the same. The difference is that where before they were independent local tenants, now there are national tenants that are paying them.

Timothy King
principal, CPEX Real Estate

What kinds of new retailers are showing the most interest in Brooklyn?

Lots of independents or chains are opening their first store in Brooklyn. Boar’s Head is opening a concept store on Court Street to test the marketplace. Yofiore opened their first store at Court Street. A lease has been signed on Smith Street with an apparel store whose sister store is a large chain. I can’t reveal the name, but it is the first ever of this type of apparel store opening in Brooklyn. On some level, with the news of the economic downturn, Brooklyn is the ultimate counter-cyclical marketplace.

Which parts of Brooklyn are you expecting to see the most retail growth in the next five years?

The neighborhoods where there is residential development: Williamsburg, Downtown Brooklyn and areas such as that. In the next three to five years those areas will see 10,000 units of housing. There are new families living there that never lived there before. They will need everything from schools to houses of worship to necessities like Laundromats to supermarkets, high-end apparel stores and specialty food shops.

Can you tell us about any new Brooklyn retail deals that illustrate the state of the market?

[Last month we] leased a 1,200-square-foot retail space at 113 Smith Street to Free People, a women’s clothing boutique created by the founders of Urban Outfitters. The rent for the one-story building at the corner of Pacific and Smith streets was close to the asking price of $9,000 a month.

Noel Caban
vice president of retail services/boroughs, CB Richard Ellis

What is the biggest challenge in getting retailers who have traditionally looked to Manhattan to consider Brooklyn?

There is a lack of understanding of how diverse these neighborhoods are. In Brooklyn alone there are 15 to 20 mature retail markets — from Brooklyn Heights to Bay Ridge to Bensonhurst.

What about vacancy rates in light of the economic slowdown? Where are they — either high or low?

Park Slope is a great example of where everything is leased. Where the D’Agostinos and Gothic Cabinet Craft used to be there are now [several] new retail tenants — Bank of America [and] Five Guys Burgers and Fries, which will do well in that location. Seventh Avenue is an established high-income market, similar to the Upper East Side and Brooklyn Heights.

Which parts of Brooklyn are you expecting to see the most retail growth in over the next five years?

Downtown Brooklyn and the adjacent vicinity need retail and services. Williamsburg with all its waterfront development will be under-retailed. Red Hook still has many viable opportunities. Sunset Park is on the cusp of major development, and Coney Island, with its new redevelopment plans, will be an excellent market to anchor in.

What are the biggest selling points being used to pitch Brooklyn? Discounted retail rents? Larger spaces?

Williamsburg, Downtown Brooklyn and even the Fourth Avenue strip off Flatbush have multiple development projects going up. New development is the selling point. If you need more selling points: 53 percent of Brooklyn’s residents are females, and in one square mile you’ll find well over 35,000 people. 

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