A recent article in The New York Times talks about why stores in SoHo and other parts of Manhattan are failing, while those in Brooklyn survive.  Between February and October last year, the article states that nearly 30,000 retail jobs were lost in New York City alone.  The pandemic was to blame, of course, but the other villains in this scenario were the landlords (or to be fair, the real estate market).

Before COVID, retail spaces in the Fifth Avenue shopping district between 49th and 59th streets were going for an average of over $3,000 per square foot, according to Crain’s New York.  Just to put that in perspective, a 2,500 square foot store under these lease terms would pay $7.5 million in rent each year.  

It’s easy to see why small retailers in Brooklyn have an easier time than those in SoHo. According to the Real Estate Board of New York’s Winter 2020 Brooklyn Retail Report, the average rent is about $300 per square foot in the Fulton Street area between Boerum Place and Flatbush Avenue.  Annual rent of $750,000 is still a lot – a staggering $62,500 a month – but there is a density of customers in the area that hopefully makes a high volume sales possible.  

There is an old adage that the three most important elements in retail success are “location, location, location.”  But we are clearly in a time when the high cost of being close to a customer base is no longer justified by the potential sales.  Both changes in buying habits (thank you, Amazon) and the decreasing number of people leaving home to work or shop are contributing to the decline in the value of almost any retail location.  The result is empty storefronts, which do not help attract customers to the remaining businesses.  A 2021 report in Moody’s Analytics reported that “The bricks-and-mortar retail sector has so far been the sector most affected by the pandemic and the subsequent rise in e-commerce sales. We project neighborhood and community shopping center vacancy rates to reach a high this year of 12.7%, up from 10.5% at the end of 2020.”

The long-term solution to this trend is complex, but one of the lessons to be learned is that you need to be working with your landlord to make sure your business remains viable.  Many retailers were able to negotiate rent concessions in the past 12 months.  The New York Times article includes a heart-warming quote from a Brooklyn retailer who contacted her landlord last March when she realized what the pandemic would mean to her business. ““He is like my dad,” she said. “His response when I called him was, ‘I am here to help you be successful.’” He forgave three months of rent.”

This is, of course, a tough time for property owners too – they have real estate taxes and mortgage debt to cover.  (Communities wanting to keep brick and mortar retail alive should consider whether a tax concession on occupied retail spaces would help.) But if you haven’t contacted your landlord to discuss your financial concerns, now is the time to do so.   Even a small rent concession could help keep your business alive in a space that probably would be difficult to rent if you were to leave.  

The spread of the vaccine hopefully means that sales will be increasing by the middle of the year, so even a temporary decrease in rent – or forgiveness of past due rent – may well be an investment in a business that will soon in recovery mode.

Happy Retailing,

Carol “Orange” Schroeder