The global coronavirus pandemic has taken a massive toll on various industries around the country, and now it seems like the luxury shopping areas are next on the chopping block.
The U.S.’s most posh shopping districts are losing tenants, causing retail rental rates to plummet to record lows.
According to a report by CNBC, the second quarter of the year saw the asking rent declined to an average of around US$688 [AU$954.63] per square foot.
Retail rental prices are dropping everywhere
This marks the 11th quarter in a row that average asking rents have dropped in New York and is the first time since 2011 that prices have dropped below $700, according to a report made by CBRE, a commercial real estate services firm cited by the publication,
Prince Street in the SoHo area had the highest drop in rates, which has now reached $437 per square foot.
This is a 37.5% plummet and the first time since 2014 that the price dropped below $500. The Upper Madison Avenue area, home to luxury brands like Hermes and Celine, saw a 15.3% drop in rent rates at $882 per square foot.
NYC is just the beginning
Analysts have pointed out that the negative effects of the coronavirus pandemic on New York City’s luxury retail industry are foreshadowing what’s to come to other major cities soon.
In the same CNBC report, President of JLL’s Retail Advisory team, Naveen Jaggi, said the following:
“In the U.S., certainly you will see that what was once perceived as a luxury block in any major city is no longer exclusively luxury.”
Jaggi explained that as the problem progresses, real estate space will be taken up by non-luxury brands moving into Fifth Avenue.
The luxury area saw previous tenants like luxury bag maker Valentino trying to get out of its lease by suing its landlord. Meanwhile, stores like Barneys down on Madison Avenue are virtually empty spaces.
This is not a new trend
However, the trend of shifting from luxury to non-luxury, and its subsequent effects on real-estate was already happening before the global pandemic hit.
As an example, in 2018, discount store Five Below opened a store on Fifth Avenue, near-luxury areas like Saks Fifth Avenue and Louis Vuitton.
But the negative effects of the pandemic on the U.S. economy are expected to hasten this process.
“We will see an extension of what happened in 2008 and 2009, which left American consumers shifting toward value more aggressively,” Jaggi said.