Economic Profile 2007

Retail Market Analysis

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. Demographic changes in the area continue to generate 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, adopted in 2005, will increase the retail potential as more housing units are built in the area. Overall retail potential is over $1.3 billion and should increase to almost $1.6 billion by 2017.

Retail Inventory

During the Fall of 2007, 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.

Overall, the retail base has continued to remain steady compared to last year. The vacancy rate increased slightly and now represents 9.6% of the total space, compared to 9.2% of the total space last year. Overall, the total square footage in the occupied space representing the various store categories represents similar proportions compared to the prior year. The exceptions are found in the GAFO store category, which now represents 28.9% of the total space, an increase from the 2006 figure of 24.8%, and the non-retail category, which had 25.7% of the total space in 2006, but now represents 21.7% of the total space.

More specifically, there are a total of 23 new retail tenants in the area. Approximately 69.5% of this total, were a mix of GAFO type stores, restaurants, or personal and business service establishments. The remaining establishments were wholesale establishments and apparel stores.

There were also 37 newly created vacancies in the area. Approximately 38% were formerly occupied by wholesale fashion businesses. The remaining new vacancies were formerly occupied by a variety of GAFO -type stores, service, convenience, and restaurant establishments.

In general, the retail mix within the Fashion Center BID has continued to change in over the years with storefronts occupied by more retail and service-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 12,130 persons, a small decrease from year’s figure of 12,495. However, we expect that population growth will show an increase of resident population in future years. It is estimated that resident population could rise to about 14,000 by 2012. By 2017, population growth is expected to continue to grow and will reflect the recent re-zoning of Manhattan’s West Side. According to the Hudson Yards Rezoning document, 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.

* 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 (1.72 persons per household) is well below the Manhattan average of 2.03, according to ESRI, Inc. The trade area’s household size of 1.72 persons per household reflects the many unmarried residents living 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 (51.0%) of the population is between 25-44 years old. The median age of the resident trade area is 35.4 years old.

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 (2007) indicate per capita income at approximately $61,630, just above the Manhattan figure of $58,659. The median household income for the resident trade area is estimated at $72,128, slightly higher than the Manhattan figure of $67,911. Per capita and median income for the trade area has risen significantly from last year when incomes were reported to be $58,220 and $66,825, respectively.

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 2007, 2012, and 2017 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 2007 value of the dollar.

Total resident retail potential is estimated at about $217.5 million in 2007, and should rise to almost $336.7 million by 2017. 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 265,600 employees close enough to the Fashion Center BID's retail corridors to shop there. This figure is based on NYS Department of Labor data, CoStar 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 98.3 million square feet of existing space contained in 596 buildings. Of this total, about 4.7 million square feet of space is currently vacant. An additional 9.7 million square feet is occupied, but available on the market. Based on a current occupancy of approximately 92.9 million square feet of space, we estimate that there are about 2265,600 employees in this area. This is an increase of 6.4% over last year’s estimate.

New construction, conversion of loft buildings to office space, as well as the fact that office workers tend to occupy less square footage compared to industrial space employees, all contribute to the increasing number of employees in the area and the strength of this market segment in its support for retailers. Based on CoStar reports, we estimate future employees to reach approximately 278,000 by 2017.

Studies also indicate that employees in a highly active retail area spend an average of about $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 $1.1 billion today and should increase to almost $1.3 billion by 2017. Approximately 55% of this total is within the Eating and Drinking category.

* 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. Past estimates indicated 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 45 million visitors are estimated to come to New York City by the end of 2007. This estimate is an increase over the 43.8 million visitors estimated for 2006. Direct spending by visitors for 2006 was reached a total of $24.7 billion in New York City, an increase over the $22.8 billion in 2005. While much of these dollars are spent on lodging and local transportation (22% and 15%, respectively), the balance, a significant portion (about 63%) 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 $1.31 billion in 2007, and would rise to over $1.67 billion by 2017, without accounting for inflation.

Exhibit 10 Resident and Employee Retail Potential 2007-2017

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 approximately $725 million in retail sales volume in the categories for which potential was calculated.

The natural growth in the identifiable markets by 2017 will provide the need for a considerable amount of additional space, approximately 254,850 square feet. In addition, there is over $145 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 220,650 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.

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