Manhattan Retail – A Sea Change for Properties in the City’s Venerated Shopping Districts? And Their Assessments?

The signs are everywhere: 188 vacancies counted on Broadway in May by the Manhattan Borough President Gail Brewer’s office; 82 empty storefrontsalong Madison, Lexington, Third and Second avenues between 57th and 96th streets; 37 stores vacant or for rent on Madison Avenue’s coveted retail sector stretching from East 57th Street to 77th Street; the Bleecker Street luxury corridor now riddled with vacancies. Even the vacancies of Fifth Avenue‘s storefronts are “radical.” 

Observers have noted what appears to be a fundamental change in American shopping habits. The ability of megamerchandisers like Amazon and other online retailers to provide same-day delivery has made has created fierce competition with stores. With this change, retailers are cutting back on store locations. In April, the New York Times reported that general merchandise employers had laid off about 89,000 workers since the prior October, a figure representing more than the employment of the entire coal US coal industry. Throughout the country, the decline in retail has been evidenced in the emergence of “zombie” malls — malls that continue to operate, but with a very high vacancy rate. These observers note note that the softening demand for “bricks” — physical shopping venues — in exchange for “clicks” — online shopping — appears to be more than a temporary blip in the market and reflects a permanent decline in demand for retail space. 

A building’s retail space is often the core of its economic engine. In Manhattan, per-square-foot rents charged for retail spaces can be five to ten times the rents charged for residential, office and other uses. The reduced demand for retail space can have a significant impact on the profitability of properties with retail square feet. 

New York law requires that income-generating real property be assessed based upon its income-producing capacity. The retail vacancies that many Manhattan properties are currently experiencing appear to be part of the national decline in demand for retail space. The reduced income potential of retail space should be reflected in reduced real property assessments.