After weathering the pandemic, Sara Schiller and her business partner decided two weeks ago that they would open their Sloomoo Institute slime store in SoHo every day.
Their decision to run an extra three days per week isn’t likely to make them more money since they will be happy to break even on most weekdays providing kids and adults alike with some gooey fun. But unless there is more retail activity on Broadway, their long-term prospects are uncertain at best.
“We want the street to be full and active because that attracts foot traffic and provides people with a feeling of safety and comfort,” Schiller said. “We are starting to see people coming in from the suburbs. We are still waiting for the tourists. And we need families.”
With the city’s economic reopening accelerating, the future of retail in Manhattan, especially in the key business and tourist sections of the borough, remains unclear. All but one of its 17 retail corridors tracked by the Real Estate Board of New York have seen their asking rents decline over the past year, according to a recent REBNY report.
And SoHo landlord’s are among the hardest hit. The decline in asking rent is nearly 40%, REBNY found. At the end of the first quarter, one-third of the retail spaces along Broadway were vacant, according to a report from the SoHo Broadway Initiative, the business improvement district that covers the strip from Houston to Canal streets.
“In order to fill these vacant storefronts and continue what will certainly be a multi-year recovery, we need people to continue to return to SoHo to live, work, visit and importantly, to open businesses,” said Mark Dicus, executive director of the BID.
The SoHo Test
SoHo is a test case for a key assumption of economists and retail experts: that the decline in rents due to the pandemic recession will spur businesses to take advantage of lower costs to fill vacant spaces — if office workers and tourists return.
In SoHo, the test is made potentially more telling by a pending rezoning that would remove shackles on retail space that could limit the recovery.
“The retail market’s adjustments over the past year provide new windows of opportunity for the industry, from introducing new retailers to the market to the use of creative lease agreements and rent concessions,” said REBNY President James Whelan. “Now as COVID-19 restrictions ease and the city comes back to life, there is a real sense of optimism that we will see an accelerating recovery throughout the retail market in the coming months.”
The broader SoHo market, to its champions, is unique. The one-time manufacturing district-turned-artists’-haven that sparked a real estate boom now boasts 500 stores — making SoHo the largest urban retail district in the Americas, argues Andrew Kahn, a Cushman & Wakefield broker who specializes in the neighborhood.
He compares the upscale shops of Greene Street to the luxury stores that dominate Madison Avenue on the Upper East Side.
SoHo once attracted both day trippers from around the city and the suburbs as well as a significant portion of the record 67 million tourists who visited the city in 2019.
A nationwide study by the consulting firm HR&A Advisors found that in 2016, sales per square foot in SoHo and NoHo outperformed every retail area studied — including other major districts in New York City, Michigan Avenue in Chicago and Union Square in San Francisco — except for a stretch of Fifth Avenue.
For two decades, retail grew in the area despite restrictions — designed to preserve manufacturing space — that required special permits for most stores and limited them to 10,000 square feet, with food and drink venues allowed only half that amount.
A few transactions hit $1,000 per square foot in the middle of the last decade before sliding even pre-pandemic. Today, the average asking rent has stabilized at $310 a square foot, according to the REBNY report.
Ready for Slime Time
Schiller’s slime store illustrates the possibilities for new businesses. Working with slime, she says, is very therapeutic.
She opened in the fall of 2019 with a pop-up store on a six-month lease designed to test her concept. It proved an immediate hit with 90,000 visitors in four months. A pivot to online kept the business going, along with a $125,000 PPP loan, until the Sloomoo Institute began a gradual reopening last summer.
“We lost a lot of money in the beginning but then gradually broke even,” she recalled.
The six full-time employees kept their jobs. The 400 people Schiller had on a roster for part time work lost most of their hours.
But because Schiller’s lease came due at the height of the pandemic, her landlord had little choice but to renew her rent based on a percentage of revenues. (She wouldn’t disclose the percentage but many landlords agree to anywhere from 5% to 15% in these types of deals.)
Now the store is once again operating at 100% capacity, although traffic is about 75% of the peak. Revenues may be rebounding, but shipping fees for her slime, which is imported from China, have tripled and marketing costs have soared as well.
Behind the Zoning
Landlords and potential tenants are now in a dance to discover appropriate rents, notes Michael Salzhauer, whose family owns three buildings in the corridor. One potential tenant had offered him as little as $20 a square foot in the initial round of bargaining. He didn’t accept it.
How long the process takes may depend on the rezoning, scheduled for a vote before the end of the de Blasio Administration.
Much of the attention has been focused on proposals to allow more housing, including affordable units, to diversify what is a predominantly white and upper-income neighborhood.
However, the zoning would also end the restrictions on retail, which included requiring that every space be marketed to industrial tenants, leaving most spaces vacant for a year, as well as limiting retail to the first floor.
Despite existing restrictions, manufacturing and warehousing employment in the area declined by 42% from 2002 to 2015, the HR&A study found. During that time, retail jobs soared 73% and now exceed 10,000. Over 20,000 office workers came to the Broadway corridor every work day before the pandemic.
“I spend a lot of time getting the retail legalized in my stores,” said Salzhauer. “One of the obstacles big tenants have is discovering the space they are interested in may not be legal. In a more tenuous environment, people won’t be falling over themselves to seek special permits.”
Smaller tenants don’t have the time or money to go through the process, he added.
The substantial residential population has long worried about the retail expansion, concerned about truck traffic, loading and crowded sidewalks. The BID is trying to prompt the city to work on solutions to those problems.
‘People Were Greedy’
The SoHo Alliance, a community group that is in court trying to block even consideration of the de Blasio proposal, would be willing to see retail legalized without special permits, as long as the city maintains the 10,000-square-foot limit and emphasizes local retailing. The group blames vacant stores on landlords.
“These people were greedy and they are like real estate hedge funds,” said Sean Sweeney, the group’s president. ”They went bust and now they are whining.”
The BID’s Dicus says foot traffic on recent weekends has jumped and estimates it is on average between 50% and 60% of pre-pandemic levels. A complete recovery is by no means assured for SoHo or the city’s other major retail districts that depend on office workers and tourists.
“Things are very fragile,” said Salzhauer. “It will take six months to two years to find a new equilibrium.”