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The Real Deal | Meatpacking’s second wind

09.01.15

By Adam Warner

The Meatpacking District is experiencing a second wind as a retail hotspot, thanks to the new Whitney Museum, a maturing High Line and growing tech companies leasing office space in the area.

Meatpacking gained momentum with the arrival of high-end designers like Jeffrey Kalinsky in 1999 and Alexander McQueen in 2002. Rents surged, but then fizzled during the recession, and a number of the most high-profile retailers abandoned the area.

The Real Deal spoke with retail brokers and developers in the Meatpacking District to learn the impact of the new attractions and office workers. They agree the increased traffic is attracting more mainstream retailers, and competition is heating up for both prime spots and locations that are more off-the-beaten path.

“It wasn’t long ago that you could roll a bowling ball down the street during the day,” said Jedd Nero, executive managing director of Avison Young. “That’s all starting to change.”

The High Line’s helped increase foot traffic, and the Whitney’s opening this year brought an even greater number of tourists and locals, boosting retail sales and sending rents back up.

Deals by Restoration Hardware, Samsung and Madewell hint at the neighborhood’s future as a technology, hospitality and cultural hub as it builds west toward Washington Street, attracting well-off geeks, giddy foodies and polished globetrotters alike.

“Retailers aren’t steering clear of any nook and cranny within the district,” said Brad Cohen, senior director at Eastern Consolidated. “It’s all gold.”

For more on the re-emerging retail scene in this historic neighborhood, we turn to the experts.

Jared Epstein
Vice President, Aurora Capital Associates

Last year’s $250 million deal to bring Restoration Hardware to the Meatpacking District is still a topic of conversation. What impact did that deal have on the neighborhood retail climate?

Well-heeled New York residents, international tourists, millions of annual High Line Park visitors, TAMI (technology, advertising, media and information) tenants that fill the new office developments and the millions of visitors that are checking out the recently opened Whitney Museum are waiting for the Meatpacking District to evolve into a community with greater retail offerings. Restoration Hardware’s Meatpacking art gallery will be the flagship for the company’s fleet of stores, and its largest and most impressive at that. It will be the neighborhood’s much needed retail anchor and will draw shoppers from near and far to explore the area.

How competitive are retail property sales in Meatpacking these days? What opportunities still exist for developers?

With Aurora’s joint venture purchases of 46-47 Gansevoort Street, 40 10th Avenue and 61 Ninth Avenue, there is nearly nothing left to be developed and very little to redevelop in the Meatpacking District. Unless you’re a developer that already has a position in the neighborhood, it’s probably too late. Competition from investors to own a piece of the neighborhood is fierce and will remain so.

Have the big leases signed by Google, Samsung and other tech or creative firms over the last few years had a big impact on the area’s retail?

The purchase of 111 Eighth Avenue and subsequent big leases by Google, along with the large leases by Samsung and Palantir, have a huge impact on the district. Other companies in the TAMI sector are scouring for opportunities to locate their office close to Google’s headquarters. The amount of office space available in the neighborhood is scarce and the demand is huge. It’s pure economics. Office rents have surged past $100 per square foot and the neighborhood’s first $200-per-square foot rent will likely be achieved in the newest developments. Retailers have noticed the booming office market. … The increased number of professionals with significant incomes from the TAMI sector throughout the neighborhood’s office buildings will add strong foot traffic from customers with deep pockets.

What types of retailers are most absent from Meatpacking right now?

Several of the luxury retailers that helped put the Meatpacking District on the retail map left when the rents were pushed to levels that didn’t support the retailer’s sales volumes. Retailers throughout the district have stated that their sales volumes spiked after the Whitney opened and they continue to beat last year’s sales figures dramatically. Luxury retailers have taken notice and are back on the hunt to reopen in the neighborhood.

Restoration Hardware, whose store is taking over the space formerly occupied by the pioneering French bistro Pastis, is also planning a restaurant and hotel in the neighborhood. And Legacy Group is building a 25-story hotel on West 15th Street. What is the climate like for hospitality businesses right now?

It is my understanding that the Restoration Hardware hotel will only have 12 rooms and that the Rockpoint-controlled site on West 15th Street may indeed not be developed into a hotel. The Meatpacking District is and will always be a mecca for hospitality. The neighborhood’s unique European streetscape and setting of historic buildings, featuring gritty industrial spaces combined with new glass additions, has been received very well.

Joanne Podell
Vice Chairman, Cushman & Wakefield

What impact did the Restoration Hardware deal have on the neighborhood’s overall retail climate?

The Restoration deal gave further credibility to the importance of the Meatpacking District as a day-to-evening trading area and certainly raised interest in future development. More than anything, the deal’s greatest impact on retail in Meatpacking was reaffirming that the market appeals to multiple types of users.

Is there still room for more retail growth in Meatpacking in the next few years?

We should expect more growth in the future, especially along Washington Street, which is assuming 14th Street’s former role as the gateway to Meatpacking. Washington Street still has available space but, based on present activity, we expect significant absorption.

Have the big tech and creative company leases in Meatpacking over the last few years had a big impact on the retail?

I think these tech and creative firms are drivers for Meatpacking’s continued retail growth. They’re improving the neighborhood’s density, which is integral to the success of the Meatpacking’s retailers.

How have the High Line and the new Whitney Museum influenced retail in the Meatpacking District?

Because the High Line is interesting, it brings people into the neighborhood. The Whitney will prove to be a great asset to Meatpacking, especially since it provides year-round activity as a destination and isn’t subject to weather restrictions.

Hogs & Heifers is closing due to a massive rent hike. Are other bars and restaurants in Meatpacking getting squeezed out by the high rents, as they are in other parts of Manhattan?

Situations like this are an unfortunate by-product of changes in the market, typical of other areas where leasing activity is increasing. I can’t say for certain whether other bars and restaurants in the area are closing for this reason. With that, others will replace them.

Jedd Nero
Exec. Managing Director, Avison Young

What are you seeing in terms of retail rents in Meatpacking right now and how does that compare to the last few years?

The Meatpacking District has gone through a transformation. It started off years ago with Jeffrey [Kalinsky]. He was a catalyst who started bringing in all different types of tenants. At that point, it was high-end tenants looking for a cool, hip and chic environment. But it was very slow going and didn’t reach critical mass. The biggest impact has been the opening of the
Whitney Museum this year. It’s a destination location now. The highest asking rents are on Washington because of its proximity to the museum and the High Line. A few years ago, you were seeing deals in the $200-per-square-foot range. Now deals are getting done in the $350-to-$450 range.

Which national retailers or types of retailers are showing interest in the area?

National tenants are not pioneers. They follow each other. They look for the critical mass. In the neighborhood, you’ve got Columbia Sportswear, Hugo Boss, Madewell, Quicksilver and those types of tenants. But you also have places like Dash and Michael Stars — the unknown retailers or ones who come from abroad and set up shop and have that one New York store. It’s an eclectic mix. It’s like Soho to some degree, where you have Broadway, which is like a mall strip, but in the heart you have unique types of tenants. Take the online optical store Warby Parker. One of its first stores was in the Meatpacking District and they did phenomenally well. I was in that store a few weeks ago, and the place was jammed. So today, you have tenants like them, you have Lululemon, Levi’s, Kiehl’s. It’s more of the mid-range type of tenant as it continues to grow. … It wasn’t long ago that you could roll a bowling ball down the street during the day. You’d just see these salespeople staring out the window with nothing to do and you’re there scratching your head saying, ‘How are they making a living?’ That’s all starting to change.

Hogs & Heifers is closing due to a massive rent hike. Are other bars and restaurants in Meatpacking getting squeezed out by the high rents?

They were paying about $16,000 per month and the asking rent there is $60,000 per month. So it’s kind of hard for a bar like that to sustain and make a living at those kinds of numbers. So yes, anyone who has enjoyed that kind of rent and has their lease coming up — in an area where rents are going up dramatically — it will be hard for them to stay where they are.

Are there any portions of Meatpacking that are not attracting retailers? What are vacancy rates like right now?

There’s still a good amount of space on the market that needs to be absorbed. Clearly, Washington is the street that most would be interested in at this point, and it’s the most expensive, because of its visibility and accessibility from the Whitney and High Line. There are several spaces still available on 14th Street. Gansevoort has a handful of availabilities. Ninth Avenue has a handful of availabilities. Washington’s got a little less than a handful of availabilities. Asking rents there are around $550 to $600 per square foot, whereas on 14th Street asking rents are in the range of $300 per square foot.

What challenges are retailers facing in the Meatpacking District?

It’s once again an emerging area. And as time goes on, it will get stronger. So it’s the challenge of being able to build a business and sustain it and being able to grow as the market grows. If you wait until the market is really mature, then you’re going to be entering a market where you’ll be paying a lot more in rent. Then again, there are those that are willing to wait because they are okay paying more rent, as long as they know there is business there. It still takes vision and foresight to understand what a market has to offer. That’s really the biggest challenge at this point, spending thousands of dollars in an area you may not be 100 percent sure of yet.

Karen Bellantoni
Vice Chairman, RKF

Is there still room for more retail growth in the next few years?

I think there’s going to be a filling in of retail space at 860 Washington Street and the Scoop Building at 430 West 14th Street, as well as in vacant spaces on 14th Street and the Gansevoort Market area between Washington and Greenwich streets.

Which national retailers or types of retailers are showing interest in the area? Are most of the inquiries coming from local or national players?

I’m seeing a mix of tenants that are looking to this market, including a lot of food and beverage purveyors, galleries and specialized stores like Warby Parker, Zadig & Voltaire and rag & bone. I’m not seeing as many mass-market national retailers.

How have the High Line and the new Whitney Museum influenced retail in the Meatpacking District?

Retailers in the area have been telling us that since the Whitney opened, their sales have increased 30 to 40 percent. The High Line has been good for the market, but the Whitney opening was the real influencer.

What types of retailers are most absent from Meatpacking right now?

I’d like to see more national retailers like Uniqlo or Banana Republic, and more fashion in general, in addition to rag & bone, Intermix and Jeffrey. It needs a deeper offering in fashion and a move more into Gansevoort Street from Washington Street.

What is the climate like for hospitality businesses right now?
The restaurants, hospitality spots and hotels are doing extremely well. Certain restaurants like Santina, Bobby’s, the Standard Grill and Tao, as well as places like the Standard Hotel and Gansevoort Hotel, are really driving a lot of traffic in the market. The upcoming Tao Hotel will likely add to this. It’s certainly a desired area for people to want to stay.

What challenges are retailers facing in the Meatpacking District?

A lot of it is seasonality. When the weather is great and people are out on the High Line, it’s always a plus for the neighborhood. In the winter, there’s less traffic in the market from tourists, although office and residential crowds are still strong. The nearest transit hub is on Eighth Avenue, which can be challenging, in addition to the construction on Gansevoort Street, which is currently hindering traffic. There’s also a misperception that the area is primarily restaurants and bars, but the neighborhood has a lot of great retail offerings that you don’t find anywhere else.

How has business changed for you as a retail broker in the Meatpacking District in the last year or last few years?

The maturation of the High Line and addition of the Whitney, as well as new office tenants and residential development, has created a whole new dynamic for the neighborhood and it’s created renewed excitement from retailers.

Brad Cohen
Senior Director, Eastern Consolidated

How competitive are retail property sales in Meatpacking these days? What opportunities still exist for retail developers there?

The market is very competitive. For example, the five-story office building that Eastern Consolidated sold for $44.5 million at 437-439 West 16th Street has 22,000 square feet above grade, which translates to over $2,000 per square foot. Because the majority of the core Meatpacking District maintains a landmark designation as the Gansevoort Market Historic District, there are some barriers to entry for new large-scale projects, making properties on the surrounding streets and avenues more desirable.

What are you seeing in terms of retail rents in Meatpacking right now and how does that compare to the last few years?

Due to the popularity of the neighborhood, commercial rents have increased dramatically over the decade. For example, asking retail rents can range as high as $300 to $600 per square foot on West 14th Street between Ninth and 10th avenues depending on the size of the space and amenities. But rents on Horatio and Hudson streets average under $200 per square foot.

Do you think there is still room for more retail growth in the next few years?

The core area of the Meatpacking District is full of high-end apparel, specialty stores, and destination restaurants and clubs. There is more opportunity for retail growth outside the core area on the peripheral side streets and among traditional service oriented businesses.

Which national retailers or types of retailers are showing interest in the area? Are most of the inquiries coming from local or national players?

In recent years, the retailers showing interest in the area has shifted from the very high-end boutiques like Alexander McQueen and Stella McCartney to more mainstream [shops]. Stores like Anthropologie, Lululemon and Patagonia are being attracted to the district because of co-tenancy.

Are there any portions of Meatpacking that are not attracting retailers? What are vacancy rates like right now?

There are pockets of the neighborhood that retailers have historically shied away from, but now, retailers aren’t steering clear of any nook and cranny within the district. It’s all gold.

Michael Phillips
President, Jamestown

Is there still room for more retail growth in the next few years?

With the opening of the Whitney, along with more development on Washington Street, the central part of the Meatpacking District will continue to flow west. There has always been a dynamic mix of local and national fashion retailers providing a constant draw to the Meatpacking District. Louis Vuitton, Cartier, J.Crew, H&M and Zara have showed interest in recent months. But I think there is also a lot of interest from smaller, local retailers that are concept driven, [pop-up retailer] Story for instance. Part of what makes Meatpacking an exciting area is the mix of retailers, from national luxury brands to smaller, more creative concepts.

How have the High Line and the new Whitney Museum influenced retail in the Meatpacking District?

Since the opening of its first phase in 2009, the High Line has been a game-changer for Meatpacking and continues to be a huge draw for both locals and visitors alike, and it is becoming a focus for community art and contemporary design. The Whitney has quickly become a cultural and civic landmark, building on the momentum we are seeing throughout the district.

Have the big leases signed by Google, Samsung and other tech or creative firms in Meatpacking over the last few years had a big impact on the retail?

The global tech firms have enhanced the international cache of the Meatpacking District and retailers are well aware of this. With the increase of the tech workforce in the area comes demand for sophisticated retail and hospitality offerings. With Samsung coming and the addition of the Samsung store, I think we’ll see a growth in the already dynamic mix of retail, fashion and lifestyle. The Tippler, a speakeasy in the lower level of Chelsea Market, was designed as a place for young tech workers to come relax. I think we will continue to see an influx of innovative food and beverage concepts as businesses move into Meatpacking.

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