New York City’s Fifth Avenue and Madison Avenue are lined with luxury retailers paying some of the highest rents in the nation. Starkly visible are the numerous empty storefronts that have remained vacant for months along these commercial corridors. According to Cushman Wakefield, the average ground floor rent on lower Fifth Avenue, between 42nd and 48th Street, is $840 per square foot, and the average rent for upper Fifth Avenue, between 49th and 60th Street is $2,697 per square foot. The average rent on Madison Avenue is $954 per square foot. Vacancy rate for these two shopping corridors is an astounding 27%. The macro shifts in e-commerce, demographics, high rents, and changes in consumer trends are factors explaining the exodus of the flagship stores for Versace, Ralph Lauren, Gap, and others.
The city has proposed different options to combat the prolonged vacancies, including offering tax incentives to businesses moving into areas with a high commercial vacancy rate, while the mayor is pushing for a “Vacancy Tax.” This would be a fee for commercial landlords suspected of keeping storefronts off market and holding out for a higher paying tenant. Mayor Bill de Blasio’s other proposal is to establish commercial rent control (a commission will be established to study this matter).
In July 2019, New York City introduced the “Storefront Tracker Bill,” requiring commercial owners to report lease and vacancy information pertaining to the first and second levels of their property. This information will be kept in a database as a resource for future policy decisions. The city needs the tax revenue, yet tenants cannot afford the high rents with the property tax increases passed through via their modified gross lease, and landlords are left reducing the rents to keep their space occupied. There is no clear answer to resolve the retail real estate issue, considering that household incomes are up, along with tourism.
The vacancy crisis is occurring in several neighborhoods in New York City and around the country, affecting the very high-end and very low-end retail markets. It has been suggested that commercial vacancies may be the catalyst for the next recession.