Since 1997, we have looked at the retail market and its impact on the Fashion Center BID. We have provided a physical inventory of ground floor retail uses; delineated geographic market areas for several segments of the overall retail market; and compiled and analyzed each market segment's retail potential. In recent years, demographic changes in the area have spurred the growth in the retail market.

More specifically, the overall retail potential has increased due to the natural rise in incomes, the increase in the affluent population in the immediate area and a rise in non-manufacturing employment. Developments in both the Fashion Center and Times Square area have added more office employees to the mix, and new residential developments in the area (especially along the Avenue of the Americas) has strengthen the resident segment of the retail market. In future years, we expect that the Hudson Yards re-zoning will increase the retail potential as more housing units are built in the area. Overall retail potential is over $1.17 billion and should increase to almost $1.72 billion by 2015.

Retail Inventory

During the summer of 2005, we updated our previous retail inventory, retail mix and vacancy rate for the BID retail establishments. These findings are presented Exhibit 5. While surveying, we attempted to categorize many of the ground floor retail spaces that are purely wholesale in nature as non-retail frontage. However, it was often difficult to categorize side street establishments that sell both to the public and to the trade. As a result, the report may slightly understate the amount of retail in the GAFO category, especially as regards women's apparel and fabric stores; however, we believe the inventory is sufficiently accurate for analytical purposes.

Exhibit 5 Retail Inventory and Mix - Fashion Center BID Summer 2005

*Approximate Square Footage ** General Merchandise, Apparel and Accessories, Furniture & Appliances, Other comparison Goods *** Represents predominately wholesale establishment on side streets.
Source: Robert B. Pauls, LLC.

Overall, the retail base has remained stable and moderately improved compared to last year. The vacancy rate declined and now represents 8.8% of the total space. Overall, the total square footage in the remaining store categories represents similar proportions compared to the prior year; however, the smaller number of vacant stores is reflected in a higher number of retail stores in all categories.

More specifically, there are a total of 35 new retail tenants in the area. Almost 74% of this total, were a mix of GAFO type stores, restaurants, or personal and business service establishments. The remaining establishments were wholesale establishments and food and convenience stores.

There were also 34 newly created vacancies in the area. Approximately 82% were formerly occupied by wholesale fashion businesses. However, the net loss of wholesalers was not that high, as many new tenants (about 7 establishments) were fashion/wholesale in nature. Lastly, the remaining new vacancies were formerly occupied by a variety of GAFO -type stores and service establishments.

In general, the retail mix within the Fashion Center BID has been undergoing change in the last few years with storefronts occupied by more retail-oriented stores, and fewer wholesale fashion businesses.

Market Analysis

The three natural markets available to the Fashion Center BID's retail corridors are the area residents, area employees and the growing number of visitors to Times Square, 34th Street and Herald Square. However, it is impossible to accurately measure this latter market and we will therefore address them in terms of dollar inflow to the area.

Resident Market

The residential trade area for the Fashion Center BID contains eight census tracts that extend from 30th Street to 42nd Street, Fifth to Tenth Avenues. The total population of this trade area was only 10,281 according to the 2000 Census. While this appears to be a small amount of population, resident population actually increased by about 2,500 persons between 1990 and 2000. Total population is currently estimated at 11,500 persons, a 1.3% increase from last year. We expect that this population growth will continue, and that resident population could rise to about 13,000 by 2010. By 2015, population growth is expected to reflect the recent re-zoning of Manhattan’s West Side. According to the Hudson Yards Rezoning, it is estimated that 13,600 units of housing could be built by year 2025. Based on the average household size of Manhattan, these projected housing units are equivalent to an estimated 20,000 – 25,000 in added population, which increases the retail potential in the future years.

Exhibit 6 Fashion Center BID Trade Area Resident Population 2005 - 2015

* Assumes new development and population growth as a result of westside re-zoning.
Source: ESRI Business Information Systems; Robert B. Pauls, LLC

Average household size of the trade area is well below the Manhattan average of 2.0 as reported by the 2000 Census. This reflects the many unmarried residents in much of the housing in the area.

This is borne out by the fact that there are relatively few children and young adults under 24 years old, and even fewer past 65 years old. Like many of Manhattan’s burgeoning neighborhoods the vast majority (51.7%) of the population is between 25-44 years old. The median age of the resident trade area is 35.3 years old.

Exhibit 7 Fashion Center BID Trade Area Age Distribution - 2005

Source: ESRI Business Information Systems

Not only is the resident population comprised of many unrelated individuals, it is also quite affluent. According to the 2000 US Census, per capita income was $42,557. Current estimates (2005) indicate per capita income at approximately $56,250, just under the Manhattan figure of $56,425. The median household income for the resident trade area is estimated at $63,720, slightly higher than the Manhattan figure of $60,630.

On the basis of the above, we have developed per capita spending patterns for area residents in four major retail categories: GAFO, Food at Home, Eating and Drinking, and Convenience and Personal Services. The retail potential for each category is the product of multiplying the per capita expenditures by trade area population.

Estimates and projections of retail potential for 2005, 2010, and 2015 are presented on Exhibit 8. Expenditures were increased by 1.0% per year to reflect real increases in income and spending, but do not reflect any inflationary increases. Therefore, all potential figures are in terms of the 2005 value of the dollar.

Exhibit 8 Fashion Center BID Trade Area Resident Trade Area Income, Retail Expenditures & Potential - 2005 - 2015

* Assumes new development and population growth as a result of westside re-zoning. Source: ESRI; Robert B Pauls LLC.

Total resident retail potential is estimated at about $188.2 million in 2005, and should rise to almost $542 million by 2015. This potential represents the total amount of money available from trade area residents for the goods specified, no matter where they may be spent. Realistically, the Fashion Center BID's retail corridors will be able to capture only a share of these dollars, depending on the category. Most of the GAFO potential will flow to the many destination-shopping districts in the City, while much of the Convenience/Services and Food at Home dollars will be spent locally.

Employee Market

This is one of the primary sources of retail dollars. A variety of studies indicate that employees will consistently travel 600 to 800 feet from their place of work for retail goods and services. This is approximately one Avenue or four north/south blocks. We therefore defined an employee trade area that extends beyond the Fashion BID borders to cover roughly West 31st Street to West 45th Street, and from Fifth Avenue to Tenth Avenue.

We estimate there are 238,500 employees close enough to the Fashion Center BID's retail corridors to shop there. This figure is based on NYS Department of Labor data, office vacancy reports for this geographic area and industry standards that provide an estimate of the square foot area inhabited by employees in different work environments. For example, an office worker typically occupies about 275 square feet of space, while an industrial and retail setting represents about 375-400 square feet per employee. We have utilized 350 square feet per employee to estimate the total number of employees in this trade area.

The employee trade area contains approximately 90.4 million square feet of existing space contained in 520 buildings. Of this total, about 6.9 million square feet of space is currently vacant. An additional 10.7 million square feet is occupied, but available on the market. Based on a current occupancy of approximately 83.4 million square feet of space, we estimate that there are about 238,500 employees in this area. This should increase over time as more loft buildings are converted to office space and office workers tend to occupy less square footage compared to industrial space employees.

Studies also indicate that employees in a highly active retail area spend an average of $4,145 per capita on goods and services per year near the workplace. The bulk of this spending is within the Eating & Drinking category, but other dollars are spent within the GAFO and Convenience/Services categories as well.

Exhibit 9 estimates the retail potential from the employment sector. The retail potential of local employees is estimated to be over $988 million today and should increase to almost $1.18 billion by 2015. Approximately 55% of this total is within the Eating and Drinking category.

Exhibit 9 Area Employees Retail Expenditures and Potential 2005 - 2015

* Increased by 1.5% annually to account for real growth in income

Source: Robert B. Pauls LLC

Visitor Market

This is a source of spending that cannot be accurately measured. It will come primarily from “Fashion Industry” buyers and business visitors as well as metro area and out-of-town visitors to New York. Recent estimates indicate that as many as 100,000 buyers come to the "Fashion Center" every year. According to the latest data from the New York City Convention and Visitors Bureau, approximately 39.6 million visitors were estimated to come to New York City by the end of 2004. This estimate is an increase over the 35.3 million visitors estimated for 2003. Direct spending by visitors for 2004 was projected to reach a total of $5.1 billion in New York City, of which approximately $5.0 billion was associated with spending on retail goods and eating and drinking.

This is a decrease compared to the total visitor spending in 2000 which was estimated at $17.0 billion, the highest level in recent years. The impact of the September 11th attack is still very present in the minds of visitors; however, for foreign visitors in particular, the decline in the value of the dollar has provided many benefits. While much of these visitor dollars are spent on lodging and transportation, a large portion flows to the retail sector, especially restaurants and destination retailers. While these dollars are spent all over the City, the proximity of the Fashion Center to Herald Square and Times Square no doubt provides a basis of support for the area’s merchants. The exact amount, however, is virtually impossible to discern.

Total Potential & Retail Demand

Exhibit 10 indicates the total potential available to Fashion Center BID's retail corridors from the three main market segments (i.e. resident, employee, visitor) in all categories, except Food at Home, which is only applicable to the residential market. Total potential for the Fashion Center's retail corridors from these natural markets is estimated to be approximately $1.17 billion in 2005, and would rise to over $1.72 billion by 2015, without accounting for inflation.

Exhibit 10 Resident and Employee Retail Potential 2005-2015

Source: Robert B Pauls LLC

In order to assess the potential for further increases in the amount of retail space that could be supported in the Fashion Center, it is necessary to measure the previously calculated potential against the probable current levels of retail sales. Unfortunately, there are no published estimates of retail sales available for areas as small as the Fashion Center BID.

However, using typical rent to sales ratios, our retail inventory, as well as discussions with area merchants, we estimate that the area produces between $650 million and $680 million in retail sales volume in the categories for which potential was calculated.

The natural growth in the identifiable markets by 2015 will provide the need for a considerable amount of additional space, approximately 207,000 square feet. In addition, there is over $122 million in untapped retail potential assuming that 20% of the current volume is provided by inflow from the tourist and visitor markets. This will support another 186,600 square feet of space.

It remains true that there is little physical ability to absorb all of this current and future demand. However, the retail market is certainly sufficient to merchandise the vacant and non-retail spaces in the Fashion Center BID and increase store volume in the existing stores.