Online shopping continues to transform retail, and is reshaping the real estate market as well. Retailers used to house merchandise in department stores with many floors above the street level, and in most cases had buildings without office space. Now there is a shift, evidenced by real estate investors seeking to have a more mixed-used space. In Manhattan, this trend to edge out retail for office space is becoming more prevalent. Normandy Real Estate recently invested $133 million to convert several floors on the upper portion of ABC Carpet’s flagship retail store at Union Square into office space. Normandy will spend $40 million to convert the retail space into new office space.
“Many larger-format retailers such as department stores and furniture stores are reworking their concepts to maximize their retail footprints,” said Amira Yunis, executive vice president in the retail group at CBRE, Inc. “Retailers still want to showcase their goods, but, due to the changing retail environment and high occupancy rates, many are finding they no longer need this much space.”
Macy’s in downtown Brooklyn is making a similar conversion and is condensing their top four floors of the building into office space. Lord & Taylor’s flagship store on 5th Avenue is selling co-working space to WeWork’s headquarters and other office space to occupy most of the department store.
Retailers feel pressure to scale back their retail space to accommodate the way shoppers purchase goods today. Normandy’s decision to invest in property to reduce store space and convert it to office space met market demands in lower Midtown South neighborhoods for more office space. ABC Carpet’s store is in the heart of Midtown South, which is a favored submarket for technology, advertising and media companies. New or redeveloped office space in this part of Manhattan are able to capture rents above $100 per square foot. “Retail is decreasing its footprint because of technology, at the same time office occupancy in that area is growing and maturing, and therefore rents are rising,” said Paul Amrich, a vice chairman at CBRE who is advising on the Normandy project.
SOURCE: WSJ, “New Office Space Created in Retail’s Tumult, by Keiko Morris, February 25, 2018
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