Retail Vacancies
Because there’s a fairly high retail property vacancy rate (just walking down the streets of Manhattan, you see many “for rent” signs on stores), I don’t think rental rates for retail property will rise. I believe the fairly low level of demand for retail space can be explained by three factors:
- People do not have as much disposable income, so they’re not spending as much money.
- Online alternatives such as Amazon are taking business away from brick and mortar stores.
- Demographics: baby boomers are hitting their prime savings years. They tend not to spend as much money, because they have reached a point where they have everything they need—they just don’t spend as much money as they did 10-15 years ago.
While the sales market is starting to change due to the threat of higher interest rates and the fact that banks are becoming a lot more cautious lending (because the retail rental market is in retreat), the sales market is currently overpriced. As a result, I predict that purchase prices for retail properties will actually go down for the first time in a while. Until that happens, the rational choice for retailers is to rent instead of buy.
One caveat to this assumption: there is a lot of uncertainty in the world. Because of this many foreign investors see the US, and particularly Manhattan, as a safe investment. These types of investors are not concerned about return but preservation of capital. This may keep the property market at very high levels in spite of dropping rental rates. New York is a global city, not just an American one.
Contact Mohr Partners to learn more.
George E. Grace
Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016
646-312-6800
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