Retail Markets in Focus: New York City

New York’s retail sector faced significant challenges over the past few years, including high pre-COVID rents that increased operating costs, a population that migrated to suburban locales during the pandemic and the emergence of hybrid work, which reduced in-office attendance. However, an educated population, abundant mass transit and renowned high-street districts that attract local, regional and international visitors set the stage for a recovery.

High Educational Attainment

Over 65% of Manhattan’s residents have a bachelor’s degree or higher—a level that is more than 30 percentage points higher than the national average. Long Island (44.1%) and New York’s northern suburban counties of Putnam, Rockland and Westchester (collectively 50%) also have significantly higher educational attainment than the U.S. average (Figure 1).

The U.S. Bureau of Labor finds that higher education correlates with a higher share of retail spending. Sixty percent of total retail spending comes from people who have a bachelor’s degree or higher, as this cohort both earns more income and has a lower unemployment rate than the general population. Thus, areas with highly educated residents and robust educational opportunities should benefit from more consumer spending over the long term.

The New York region is also home to many higher education institutions, from trade schools to Ivy League universities. Enrollment at these institutions has declined in recent years but remains strong compared with other markets around the U.S. The National Center for Education Studies estimates over 982,000 students are enrolled in four-year colleges and universities in the New York tri-state area. Since New York residents have higher educational attainment than the U.S. average, it should outperform many other cities.

Retail districts in heavily residential communities remained resilient throughout the pandemic. This was especially true for the Upper East and Upper West sides, which outperformed the overall New York market in occupancy.

Figure 1: New York Region Educational Attainment vs. United States

Source: ESRI, CBRE Research.

Tourism Is Recovering

LaGuardia Airport passenger levels this year have eclipsed all of 2021 by 19.1% at 18.6 million, while John F. Kennedy International Airport welcomed almost 35.6 million passengers through September 2022, a 15.6% increase compared with all of 2021. A return of inbound travelers, both international and domestic, is critical to retail’s recovery. The New York State Comptroller reports domestic tourists spend $458 per visit to New York while their international counterparts spend $1,709 per visit.

Manhattan's hotel occupancy rate has rebounded to over 75%, with mid-week occupancy around 90%—partly due to longer stays and more business travelers. The Q2 2022 Hotel Horizons report for New York noted both business travel and international visitors have increased above expectations.

A uniquely New York asset is also reviving: Broadway theaters. After the COVID‐19 shutdown, the 2021‐2022 season marked the return of Broadway, with 30 of the 39 Broadway theaters operating as of November 2021, according to The Broadway League. Despite 31% fewer performances compared with the 2019-2020 season, attendance was a respectable 82% of capacity. However, total attendance is about half of the 2018-2019 level, so room for further recovery remains as people continue to return.

The local population is also fueling tourism’s recovery. In a recent report, Weekend Ridership Boosts Manhattan’s Retail Districts, CBRE’s New York-based retail research team found that, although subway usage has diminished during the week, Midtown business districts experienced an increase in weekend subway trips. Weekend station exits in retail districts ranged from 75% to 88% of pre-pandemic levels in July, while weekday station exits in the same areas largely ranged from 56% to 70%. Citywide, subway station exits were at 69% of pre-pandemic levels in July. More people out and about on the weekend presents new opportunities for stores and restaurants that previously depended on the weekday business crowd. This trend is also illustrated by foot traffic in Times Square. In Q3 2022, foot traffic recovered to almost 86% of pre-pandemic foot traffic, up from 82% in Q2 2022, according to data analyzed from Times Square District Management Association.

Figure 2: Business District Subway Usage, Weekend vs. Weekday

Source: subwayridership.nyc, CBRE Research.

High-Street Successes

Within the U.S., luxury retail remains a strong performer. eMarketer estimates luxury retail will reach $110 billion in sales by the end of 2022, and Forrester estimates the retail category of jewelry and watches grew by 49% from 2019 to 2021, compared with total retail sales growth of 22%.

New York’s high-street districts have struggled since COVID-19 decimated retail foot traffic in 2020. Taking rents for prime corner space on Fifth Avenue hit all-time highs of over $4,000 per sq. ft. in 2016 but now average just $1,700 per sq. ft. This price easing has encouraged leasing activity for prime retail spaces which had experienced recent vacancy.

Fifth Avenue appears to have withstood the foot-traffic decline that has affected many other shopping districts. Each summer month saw progressively higher levels of foot traffic compared with 2021, a performance that far outstrips most other high-street districts around the country.

Figure 3: High-Street District Foot-Traffic Performance

Source: Placer.ai.

Looking Ahead

New York retailers continue to benefit from a large student population; a highly educated, well-compensated workforce; and strong appeal to high-spending domestic and foreign travelers. Despite formidable recent challenges, these attributes make New York an enduring world-class destination.