This weekend as I walked from 8th Street to Prince Street in Soho, I was appalled by what I saw. At least 50% of the storefronts were vacant. It is DISMAL to walk around NYC at the moment – nothing but scaffolding and homeless encampments in front of empty storefronts.
How did all the smart folk in Commercial Real Estate end up so unprepared and misinformed about what the future holds for them? Years after retail hit the skids, people like Abe Rosen (who I adore and respect) were still buying buildings and crowing about how the groundfloor space would make a perfect flagship for Hermes or whatever. I don’t get it. The writing was on the wall back in 2014 when I started this blog. Whether it’s Hudson Yards or Fifth Avenue or any other prime retail corridor around the country, the gig for retail and overpriced condos is up!
Commercial real estate in a meltdown AND out of touch
With empty storefronts as far as the eye can see, how long before the first commercial real estate giant goes belly up? Googling the subject brings up precious little but it’s going to happen I have no doubt.
Why? Because this is just the tip of the iceberg. for every 1% increase in online shopping, 8,000 stores close.
While there are thousands of articles blaming “greedy” landlords (and there are certainly some), I believe this reflects a much more systemic shift in how we shop and the changing value we place on “stuff.”
Ultimately, this will lead to commercial bankruptcies that will make the 2010 housing crisis look like a walk in the park.
I know real estate people take the long view and many of these projects were started decades ago but doing more of the same (when it’s not working) strikes me as ridiculous. Retail is not coming back even with rents dropping, e.g., rents along Upper Madison Avenue (57th to 77th Streets) dropped 11.7% from a year ago. No takers. Empty storefront upon empty storefront.
The building frenzy of high priced condos over the last decade, likewise, is not sustainable. It shows developers are out of touch with reality and out of step with the times. While the price for almost everything we buy these days has gone down, condo prices are skyrocketing. It’s totally out of wack.
Scroll down for more on retail as well as residential real estate
retailers have already announced 1700 store closures – and It’s only January!
Cushman & Wakefield estimates 12,000 major chain stores will likely close in 2020 including Pier 1 Imports, Gap, Walgreens, Macy’s and Sears.
You know what’s ridiculous? stores that would rather take competitors’ returns than sell stuff
Case in point, Kohl’s with their Amazon partnership.
As reported by Motley Fool:
Kohl’s even took the bizarre step of designating parking spots for Amazon returns near the entrances of the first 82 stores eligible for the program, essentially rewarding its rival’s customers instead of its own. Of those making returns at Kohl’s, many aren’t going to buy anything in store. If they’re not buying anything from Kohl’s, then they’re just taking up parking and employee resources that could be used for actual customers.
Another example of this kind of absurdity is the highly touted Nordstrom Local.
Again, they are offering lots of services including accepting returns purchased at other stores. But if you actually want to buy something from Nordstrom you’re out of luck. I mean who has the time or the inclination to just hang out at Nordstrom Local?
Another bone of contention I have with brick and mortar stores right now is that they are always out of stock on EVERYTHING – including staff!! With my newfound eco-consciousness, I’m trying to do less online shopping. Instead, I’m schlepping from store to store to cut back on shipping. It’s not going so well!
But there is one store I just discovered that has lots of potential if it would only come to NYC
Work World has been outfitting customers with Carhartt dungarees, Wolverine boots, scrubs and other workplace gear since 1990. It has 23 stores in California and Nevada. And it’s the latest acquisition by Gart Capital Partners, the private equity arm of the Gart family.
They are so on trend.
#1: Working people (e.g., plumbers, construction, medical technicians, nurses etc.), represent a large segment of the American population and they’ve been under-served.
#2: Many fashionable young men (and women) in urban centers have turned to work wear as a style statement. They would love this retailer.
RESIDENTIAL HOUSING – HOW ABOUT MAKING IT AFFORDABLE?
Who in their right mind thinks there are buyers for all these multi-million dollar apartments? In NYC alone, it is estimated it will take 6 years to sell off the current crop of newly built condos. Several projects, including Hudson Yards, no longer have estimated completion dates.
Why not build something affordable?
Here’s a reality check ob what is needed (per The Hill)
Affordable housing (rental and ownership) is a pressing issue for both middle income and low-income households.
The percentage of households that spend over 30% of their monthly income on housing, continues to rise across income levels.
The supply of low-cost rentals dropped by 4 million since 2011.
This is partially the result of new rental construction concentrated on developing higher-cost units.
As a result, the share of new affordable apartments for low- to moderate-income renter households dropped to less than 3% annually over the past decade.
Restrictions on nearly 1.2 million affordable units are set to expire by 2029.
And in the meantime:
- There is a current need for 7.4 million new affordable units
- We have a growing population of cost-burdened renters
- There is a decrease in existing affordable housing stock
What we desperately need
#1: To recognize that retail is NOT coming back. It doesn’t matter how low the rent goes because for every 1% increase in online shopping, 8,000 stores will close.
#2: To realize that landlords do NOT generally benefit from empty storefronts. That is an urban myth. There is no tax benefit other than the fact that s/he receives less income and therefore pays less tax. It would be similar to taking a cut in salary just to pay less in taxes.
#3: Instead of building multi-million dollar condos that not even high earners can afford, let’s get a range of affordable housing built. Huge void in the market – somebody has to see this for the opportunity it is!