Back in 2012, the real estate investment firm Savanna bought the ground floor retail space in a SoHo condominium. With increasing rents in the shopping corridor, it looked like a promising sale that they planned to make five years down the road. Just one year later they sold the space for forty percent more than the purchase price. Having made more than two times their equity investment in that period of time, they were pleased with the opportunity to sell it.
Investors of every kind are on the hunt for New York City retail condominiums, which is sustaining sales prices in the tourist districts as well as in neighborhoods where new residential developments are budding. This upward trend in retail rents has caught the eye of real estate funds, institutional investors, rich individuals and established family firms. Just like the retail rents, prices of these properties continues to climb. To date, the number of retail property sales, the majority retail condos, has tripled. The value of the sales also grew from $610 million to $2.9 billion. It is expected that retail sales for this year are on track to surpass 2012’s $3.6 billion.
What is fueling this upward trend? The boost provided by off shore dollars of tourists coming into New York City and spending money in the city. Shopping and tourism has provided unprecedented growth in retail rents unlike anything seen in the past. Two factors point to the reason why retail condos are in such high demand. Expense and labor of maintaining retail condos are lower than the upkeep and tenant improvement expenses that are required of office and residential properties. Additionally, the price of a retail condo for many investors is more manageable than the cost of buying an entire building. Think of investing in a retail condo as a way of getting invested in real estate one bite at a time. For the small developer, it’s the ideal way to raise cash to pay down construction debt and finance the project upstairs. Other developers are augmenting their profits by selling the retail space on the ground floor alongside the residential condominium.
Popular locations of retail condos in New York City include Fifth Avenue, Madison Avenue, SoHo, Lower Manhattan and the Meat Packing District, all areas attracting a rising share of tourist dollars. Major retailers continue to enter the retail condo market as well as the small retailer. Small retailers are considering the fact that by owning they have an asset to negotiate with in the future.
Though many investors are focusing on the high-end retail districts such Fifth and Madison Avenue, there are investors just as strategically eyeing spots where residential condo development is booming and within reach of transportation hubs that create much foot traffic.
As the trend continues to climb upward, investors and real estate professionals alike will continue to keep an eye on the sales and the numbers. Time will be the predictor as to when and how much those in the retail condo market stand to prosper.
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