How the Second Avenue Subway is hurting Upper East Side businesses

[Via Garibaldi 8]

How the Second Avenue Subway is hurting Upper East Side businesses

POSTED ON MON, FEBRUARY 26, 2018  BY CAIT ETHERINGTON

96th Street entrance to the Second Avenue Subway, via MTA/Flickr

On Valentine’s Day, The Source, a long-running store on Third Avenue that sold everything from stationary and household cleaning products to cards and candles, closed its doors for good. Since early January, when the owner hung a going-out-of-business sign in his window, he had been telling Upper East Siders shoppers that he was shutting down for two reasons: rising rents but the drastic decline in business brought about by the Second Avenue Subway’s opening in January 2017. Although one might assume that a business like The Source is really a victim of Amazon and the rise of other online retailers, the increasing vacancy rates along Third and Lexington Avenues on the Upper East Side over the past year appear to confirm his speculation. As much as the Second Avenue Subway has been good news for businesses in Yorkville, its opening seems to have dealt a devastating blow to businesses located just west of the new line.

The southwest corner of 86th Street and Lexington Avenue, via Wiki Commons

Empty Store Fronts on the Rise

Over the past twelve months, closures along Third and Lexington Avenues in the Upper East Side have been on the rise. Third Avenue, once home to a surprisingly high number of thrift shops, saw its last thrift shop, Housing Works, close on February 20th. But thrift shops and other discount retailers are not the only types of businesses closing for good or moving to more affordable neighborhoods. Over the past six months, several eateries ranging from MamaGyro, a mother-daughter operation on Lexington Avenue, to the pricier Atlantic Grill, which once occupied to large retail space on the East side of Third Avenue between 76th and 77th streets, have also closed.

Notably, the Upper East Side has not only seen a notable spike in closures over the past year but also prolonged vacancies, with many empty storefronts taking well over a year to be rented out to new tenants. If Third and Lexington Avenues in the Upper East Side were once considered prime retail sites, in the current market, both avenues seem to have lost their appeal. Cushman & Wakefield, which tracks retail real estate nationwide and globally, reported that the retail vacancy rate along Third Avenue in the Q4 of 2017 was over 18%. While this is higher than it has been in recent years, it is important to note that it is not as high as some other prime retail areas in New York City. According to Cushman & Wakefield, the Q4 retail vacancy rate in SoHo was over 24% and at Herald Square, retail vacancies were closer to 35%.

Platform of the 96th Street station, via Wiki Commons

Pedestrians Diverted Away from Lexington

While a combination of factors may be driving the current closures on the Upper East Side, it is difficult to ignore the fact that the Second Avenue Subway has transformed the commuting habits of Yorkville residents. Shortly after the opening of the Second Avenue Subway in early 2017, the MTA published statistics on the subway’s shifting ridership. As of January 2017, only a few weeks after the new line opened, daily ridership on the Second Avenue line was already at 155,000 riders, with most riders entering at the new 72nd Street and 86th Street stations. By May 2017, the MTA reported handling 176,000 average daily riders on its new line. At the same time, the MTA reported notable declines in ridership at its Lexington Avenue Upper East Side stations, including those located at 77th and 86th streets.

While the diversion of commuters from the Green Line has been good news for Upper East Side commuters who had been struggling with overcrowded platforms and standing-room-only cars for years, for businesses along Lexington and Third Avenues the diversion has resulted in a significant loss. In the fourth week of January 2016, Lexington Avenue’s Upper East Side subway stations welcomed 327,440 riders on average daily but by January 2017, the same stations were only welcoming 240,270 riders. For businesses along Lexington and Third Avenue, this means an estimated loss of 100,000 pedestrians per day and over half a million pedestrians per week walking by and coming into to spend money.

Renderings of 151 East 86th Street, via HOK Architects

New Residential Developments May Help UES Businesses Rebound

Despite the high number of vacancies on the Upper East Side, it seems unlikely that the posh neighborhood is about to become a ghost town. First, at least some current vacancies cannot be blamed on the opening of the Second Avenue Subway and resulting diversion of pedestrians away from Lexington and Third Avenue. The Atlantic Grill closing, for example, is reportedly the result of an attempt by Northwell Health, which owns 18 hospitals around the city including Lenox Hill Hospital, to purchase a collection of residential and retail properties between 76th and 77th Street on Third Avenue. As of January 2018, the sale had yet to be finalized but the restaurant’s and adjacent bank’s recent closings appear to indicate that a deal is imminent.

Other recent closures on the Upper East Side have also been driven by new deals, including over a dozen new high-rise condominium developments. While over a dozen developments are slated to go up on and east of Second Avenue, there are also several new developments that promise to bring increased pedestrian traffic back to Third and Lexington Avenues. These include a development at 1297-1299 Third Avenue, which will replace several existing walkups with a 31-story tower, and 151 East 86th Street, which will place a residential tower comprised of 61 new condominium units above the northeast entrance to 86th Street Station on the Green Line.

Source: https://www.6sqft.com/how-the-second-avenue-subway-is-hurting-upper-east-side-businesses/

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I would say that things are definitely bad on Lexington especially and it seems to be worsening.  What's odd is I'm not sure that there's been such a decline in foot traffic, but rather people simply not stopping by places on Lex and 3rd. When I use the Lex line these days, I usually stop at places east of 3rd Avenue. The other places I'd consider on Lex would force me to walk too far or backtrack.

 

[Deucey]

20 minutes ago, Via Garibaldi 8 said:

What's odd is I'm not sure that there's been such a decline in foot traffic, but rather people simply not stopping by places on Lex and 3rd.

Pretty sure, anecdotally, it's likely fewer people there have fewer reasons to walk around due to the train - whether it's not walking down side streets because  puts them closer to their final destination, or not walking down Third because there's room on  trains and platforms so they can save time.

Be real interesting to see if there's an uptick in spending in other areas Lex and SAS reach, and if that can be attributed to the decline in Yorkville and UES.

[Via Garibaldi 8]

11 minutes ago, Deucey said:

Pretty sure, anecdotally, it's likely fewer people there have fewer reasons to walk around due to the train - whether it's not walking down side streets because  puts them closer to their final destination, or not walking down Third because there's room on  trains and platforms so they can save time.

Be real interesting to see if there's an uptick in spending in other areas Lex and SAS reach, and if that can be attributed to the decline in Yorkville and UES.

What I see when I take the  is people basically walking home and not stopping off as much unless it's along the way.  It's a bit ironic because the UES suffered during the SAS construction phase, and now it's happening again, but I think it looks very bad now, worse than I can ever recall it.  On numerous blocks along Lex from the 90s down, I count at least two or three vacancies, sometimes more, and they've been vacant for quite a while. Third is equally bad, but some of this is definitely due to the rents and more people shopping online.  You can't blame folks though.  I mean you almost have to shop online these days to see any savings. It's become so expensive to get certain things because of skyrocketing rents.  

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The world’s hottest shopping city is becoming a ghost town

By Steve Cuozzo

April 7, 2018 | 10:26am

Retail space in Manhattan sits unused as rental prices soar. 

Robert Miller

If you want to see the future of storefront retailing, walk nine blocks along Broadway from 57th to 48th Street and count the stores.

The total number comes to precisely one — a tiny shop to buy drones.

That’s right: On a nine-block stretch of what’s arguably the world’s most famous avenue, steps south of the bustling Time Warner Center and the planned new Nordstrom department store, lies a shopping wasteland.

Yes, there are bank branches, restaurants, fast-food outlets, theaters, Duane Reades, a vitamin shop and a few tourist-targeted “discount” stores. But mainly there are oodles of empty spaces covered with signs touting SUPERB CORNER RETAIL OPPORTUNITY.

The same crisis blights the rest of Manhattan. The people invested in storefront retailing — real-estate developers, landlords and retail companies themselves — tell us not to worry. It’s a “transitional” situation that will right itself over time. Authoritative-sounding surveys by real-estate and retail companies claim that Manhattan’s overall vacancy is only just 10 percent.

But they are all wrong. Bricks-and-mortar retail is shrinking so swiftly and on such a wide scale, it’s going to require big changes in how we plan our new buildings and our cities — although nobody wants to admit it.

Even the most profitable, can-do-no-wrong global chains are feeling the heat right now. H&M found itself unexpectedly sitting on $4.3 billion in unsold merchandise, The New York Times reported last month.

Why? Shopping from home or on a smartphone is a lot easier than shopping in a store. The ease of buying sweaters and light bulbs online trumps the thrill of people-watching in stores where slow-moving sales clerks take 15 minutes to ring up a $25 tie on balky computers.

Amazon makes it easier to return goods that don’t live up to expectations than it often is to buy things in stores. Clerks have no idea what’s in stock. Fashion goods displayed on shelves are chosen by too-young buyers with their minds more on the current Instagram trend than on customers’ needs.

I now buy many of my clothes from Charles Tyrwhitt online. Many more products offered there fit me than in their stores, where shirts seem cut for skeletons.

And yet, it’s scary to think that one of the city’s great pleasures, window-shopping — which also ensures vibrant, crime-deterring sidewalk life — will become a thing of the past except at certain locations.

At this rate, we face a future where streets will be mostly dark at sidewalk level for miles on end. Third Avenue in the East 60s, Broadway north of Lincoln Center, many blocks in the supposedly thriving Meatpacking District are halfway there already.

Amazon and other online-buying services now account for 9.1 percent of all national retail sales — soaring from just 5.1 percent at the end of 2011, according to the US Census Bureau. Does anyone doubt that it will rise further? Yet real-estate developers are adding to the surplus by putting millions of square feet of retail space into big new Manhattan mixed-use projects from the far West Side to Delancey Street. Just about every individual new office tower, apartment building and hotel opens with “prime” retail space in search of tenants. Super-luxury condo tower 432 Park Ave. has leased less than one-fifth of its store space after three years of trying.

We can still avoid becoming a retail ghost town like many of the country’s malls

Few retailers can afford to pay more than $250 per square foot annually in rent — yet landlords persist in asking $400 a square foot and up to $2,000 a square foot in prime zones like Fifth Avenue and Times Square.

Mayor Bill de Blasio wants to fine landlords who keep spaces empty until they find tenants who’ll pay astronomical rents. But there’s no fair way to judge who’s actually guilty. Would he punish the owners of the small corner building at 1330 Third Ave. at East 76th Street, who slashed the “ask” from $420,000 a year in 2016 to $360,000 in April 2017 and still can’t find a tenant?

New York’s vacancy crisis is due to the same factors that wiped out malls and chain stores across the United States: the rise of online shopping, private-equity takeovers that saddled retailers with too much debt, and shoppers’ changing tastes.

Only a few grasp the true scope of the problem. Vornado Realty Trust titan Steven Roth said we can only cure the national plague through “the closing and evaporation” of up to 30 percent of the weakest space — which would take five years.

Most others see no evil. So what if JC Penney, Sears, Kmart, Macy’s, Toys R Us, The Limited, American Apparel, BCBG, Payless Shoes, J Crew, Banana Republic and Gap have closed (or plan to close soon) thousands of stores across the US, including many in New York City?

We’re told that although sportswear and appliance stores don’t appeal much to millennials, their places are being taken up by fancy coffee places, “fast-casual” eateries serving the same green salads, and gyms and spas. “Experiential” retail — a term that can mean almost anything — will also help plug the gaps.

But munching spots and health clubs can’t come close to filling spaces that sportswear, houseware and bookstores are leaving behind.

We can still avoid becoming a retail ghost town like many of the country’s malls. But to increase demand for our dark storefronts, the city must roll back zoning rules in some neighborhoods that require even more retail in new buildings whether there’s demand for them or not. We should discourage the inclusion of acres of retail in giant new complexes that only add to the glut.

Otherwise, the whole town will look like Broadway in the ’50s — a corridor of salad bars and dark windows.

Source: https://nypost.com/2018/04/07/the-worlds-hottest-shopping-city-is-becoming-a-ghost-town/

[Deucey]

@Via Garibaldi 8 it's all a racket. The minute real estate became a way to park money and grow it faster than inflation this is what happens. I honestly think these REITs want quick turnover commercial renters whenever they can't get major corps in just to jack up the rents 20% every other year.

It's not sustainable, and when these storefronts aren't turned into Allstate offices and Starbucks, watch residential rents skyrocket until we have another crash like in '08 or in the '89 with the S&L scandal-related real estate collapse on the west coast.

Get your money together, cuz that'll be the time to buy up Manhattan like the Hasidic people and small real estate corps bought up Bed-Stuy and Crown Heights.

[Via Garibaldi 8]

1 minute ago, Deucey said:

@Via Garibaldi 8 it's all a racket. The minute real estate became a way to park money and grow it faster than inflation this is what happens. I honestly think these REITs want quick turnover commercial renters whenever they can't get major corps in just to jack up the rents 20% every other year.

It's not sustainable, and when these storefronts aren't turned into Allstate offices and Starbucks, watch residential rents skyrocket until we have another crash like in '08 or in the '89 with the S&L scandal-related real estate collapse on the west coast.

Get your money together, cuz that'll be the time to buy up Manhattan like the Hasidic people and small real estate corps bought up Bed-Stuy and Crown Heights.

That's another thing I've been noticing... Several Starbucks have closed near busy areas and they've been re-directing people to other Starbucks instead of opening new ones, or they open on side streets, which is obviously cheaper because there's generally less foot traffic to command higher rents.  The really young folks are the ones that are going to feel it though. I don't know how they're going to manage.  The residential rents are cooling off for now, but that's mainly due to a glut of inventory and salaries simply not being there, but landlords will keep pushing the envelope. Commercial rents though are insane... Really hard to start and keep a small business these days, even in the food industry.  

[KK 6 Ave Local]

I wonder how much businesses will suffer when the full SAS is done... you do have to wonder that. At least the outer boros won't have something like this happen to them unless a new subway pops up and it's an extension of another Bway line train. 

[Deucey]

1 hour ago, Via Garibaldi 8 said:

That's another thing I've been noticing... Several Starbucks have closed near busy areas and they've been re-directing people to other Starbucks instead of opening new ones, or they open on side streets, which is obviously cheaper because there's generally less foot traffic to command higher rents.  The really young folks are the ones that are going to feel it though. I don't know how they're going to manage.  The residential rents are cooling off for now, but that's mainly due to a glut of inventory and salaries simply not being there, but landlords will keep pushing the envelope. Commercial rents though are insane... Really hard to start and keep a small business these days, even in the food industry.  

Dunno about that. I haven't been active with CitiHabitats since I'm busy with the insurance startup I joined, but Citi just sent an email saying that agents have to go back to the standard broker fee instead of taking 1 month rent from renters, so they're seeing demand go up again.

[Deucey]

15 minutes ago, KK 6 Ave Local said:

I wonder how much businesses will suffer when the full SAS is done... you do have to wonder that. At least the outer boros won't have something like this happen to them unless a new subway pops up and it's an extension of another Bway line train. 

It's a version of induced demand, isn't it? Build a new road and it relieves the old one for a bit, the old area goes through a localized depression, then new development happens near the new road and the new road has the original problem of the old road. 

Then the old road becomes popular again because the new road's problems and then the old road has the same problems again.

Wash, rinse, repeat.

[Via Garibaldi 8]

9 minutes ago, Deucey said:

Dunno about that. I haven't been active with CitiHabitats since I'm busy with the insurance startup I joined, but Citi just sent an email saying that agents have to go back to the standard broker fee instead of taking 1 month rent from renters, so they're seeing demand go up again.

In select areas yes, but some areas aren't as hot as they once were.  We'll know for sure when the summer rolls around.

[RR503]

Cry cry tear tear pity pity. 

Change happens. And yes, NYC has a commercial rent issue, but I see nothing wrong with a redistribution of foot traffic. We're running a city here, not a museum. 

[Via Garibaldi 8]

44 minutes ago, RR503 said:

Cry cry tear tear pity pity. 

Change happens. And yes, NYC has a commercial rent issue, but I see nothing wrong with a redistribution of foot traffic. We're running a city here, not a museum. 

Right but this is a problem Citywide and it needs to be addressed. Not only is it depressing to see, usually homeless people or squatters just set up shop to panhandle so it's a quality of life problem. Change is happening but the City isn't really changing with it. What you don't think about is small businesses still play a huge role in our economy so this is nothing to scoff at. Most people don't work at big corporations but rather small companies.

[bobtehpanda]

The issue is not really the foot traffic from SAS but the insane rent spikes that all these real estate investors are asking for. SoHo and Herald Square have no shortage of foot traffic yet their vacancy rates are much higher, and that's because these landlords have no business asking for that much for rent.

Back in the old days when most landlords owned a few buildings at most, an empty storefront was 20% of the landlord's retail revenue and they would try and find a buyer at a lower price. Now with all these huge investors one storefront or two storefronts is no big deal. We need to make it illegal for all these shell-companies and LLCs to buy up real estate like this, because it kills the city.

The internet does not compete with the deli, bakery, cafe, tailor, laundromat, and many other retail services that depend on either instant service, specialized quality, or experiences. If these are disappearing it's the landlords.

[Via Garibaldi 8]

15 minutes ago, bobtehpanda said:

The issue is not really the foot traffic from SAS but the insane rent spikes that all these real estate investors are asking for. SoHo and Herald Square have no shortage of foot traffic yet their vacancy rates are much higher, and that's because these landlords have no business asking for that much for rent.

Back in the old days when most landlords owned a few buildings at most, an empty storefront was 20% of the landlord's retail revenue and they would try and find a buyer at a lower price. Now with all these huge investors one storefront or two storefronts is no big deal. We need to make it illegal for all these shell-companies and LLCs to buy up real estate like this, because it kills the city.

The internet does not compete with the deli, bakery, cafe, tailor, laundromat, and many other retail services that depend on either instant service, specialized quality, or experiences. If these are disappearing it's the landlords.

It seems like the has stopped trying to market their spaces too. I don't see much activity underground. The only exception is Columbus Circle.

[Lance]

Isn't that more due to a lack of marketable underground spaces than anything else? Correct me if I'm wrong, but isn't the overwhelming majority of retail space available to rent from the MTA just large enough for those newsstands that are so prevalent? The Turnstyle (or however you spell that) at Columbus Circle seems to be the exception rather than the norm as it pertains to large enough convertible dead space for anything truly remarkable retail-wise.

[Via Garibaldi 8]

21 minutes ago, Lance said:

Isn't that more due to a lack of marketable underground spaces than anything else? Correct me if I'm wrong, but isn't the overwhelming majority of retail space available to rent from the MTA just large enough for those newsstands that are so prevalent? The Turnstyle (or however you spell that) at Columbus Circle seems to be the exception rather than the norm as it pertains to large enough convertible dead space for anything truly remarkable retail-wise.

That's the case at small stations and they don't have such an issue at those stations, but it's the larger stations that are a problem, where they have space and need to find ways to re-imagine it.  Times Square, Port Authority and Union Square all come to mind.  The Turnstyle in my mind had to have come from similar projects in Europe.  We had those things in Italy years ago, yet it's taken the  almost over 10 years to come up with something like that. I've been there a few times, and it always reminds me of the underground shops in Florence (Italy) by Stazione Centrale.  They even had a water feature in there if I recall.  

[Around the Horn]

Quote

"While the diversion of commuters from the Green Line has been good news for Upper East Side commuters who had been struggling with overcrowded platforms and standing-room-only cars for years, for businesses along Lexington and Third Avenues the diversion has resulted in a significant loss."

Um, Green Line?! 

[Deucey]

7 minutes ago, Around the Horn said:

Um, Green Line?! 

It is green.

[Via Garibaldi 8]

11 minutes ago, Around the Horn said:

Um, Green Line?! 

Yeah I know. It pained me to read that...

2 minutes ago, Deucey said:

It is green.

Yes, but native New Yorkers don't refer to the lines by their colors.  We either say "the " lines or "the  and " or something to that effect.

[Deucey]

1 hour ago, Via Garibaldi 8 said:

Yeah I know. It pained me to read that...

Yes, but native New Yorkers don't refer to the lines by their colors.  We either say "the " lines or "the  and " or something to that effect.

6sqft gets readership outside NY, so it was written for them since Chicagoans may not know UES means Manhattan and not Queens.

Even The Guardian calls it soccer for it's American and Australian websites...