Just four years ago, the new owner of 115 Mercer St., a low-slung building in the heart of Manhattan’s Soho shopping district, managed to swiftly replace its tenants and lure retailers willing to shell out record rents. Now, that same landlord has to fight to get one of them to stay.
The Kooples, a French clothing seller, is threatening to vacate its space six years ahead of schedule if it can’t get landlord Thor Equities to cut the rent. With brick-and-mortar stores suffering from a retail industry shakeout, the company says it isn’t making enough money at the property and wants to focus on the web.
The scene unfolding on the cobblestones of one of New York’s trendiest shopping areas shows the increasingly fraught negotiations between tenants and landlords as vacancies soar and retail rents plunge. Similar scenarios are playing out along Madison Avenue to the north and along other thoroughfares in the city that have long been a draw for those shopping for designer clothing and other luxury goods. Property owners are confronting demands once unheard of in Manhattan, from rent reductions to short-term leases.
After a drought in 2017, more deals are getting done as landlords begin to accept the new reality, according to Patrick Smith, a vice chairman of the retail brokerage at Jones Lang LaSalle Inc.
“Landlords are adjusting the way they do business to market conditions,” Smith said. “It’s healthy. It certainly has stimulated activity.”
Retail landlords throughout the United States are facing a contracting universe of tenants as merchants cut back on brick-and-mortar locations and shopping shifts online. A record 11,000 stores may shutter in 2018, according to brokerage Cushman & Wakefield Inc.
That reality could affect the investment portfolios of life insurers, pension funds and other retail and institutional investors with exposure to commercial real estate.