At a cost of over $25 billion and over ten years of development, Hudson Yards has been called the largest private real-estate development in American history.
Developed by Related Companies and Oxford Properties Group, Hudson Yards is located between 30th and 34th streets on the Hudson River in Manhattan, New York City. Spreading from the Jacob Javits convention center to the north, the complex wends its way south to connect with the High-Line elevated walkway and public park. Hudson Yards represents the creation of a new neighborhood where for decades only train yards and decaying warehouses lay.
Rising from the Yards’ five-acre plaza and garden, the iconic “Vessel,” stands 15 stories, weighs 600 tons, has 80 “viewing stations” and is accessed via 2,500 climbable steps. Its reported cost? $150 million.
Much of the cost of development is being generously, and quietly, offset by taxpayers.
Recently there was an uproar due to New York’s potential $3 billion in tax support, or lack thereof, for Amazon’s HQ2 locating, and then not locating, in New York City. That number pales in comparison with the $6 billion in tax incentives and other accommodations provided to Hudson Yards, including $2.4 billion to extend the No. 7 subway line.
Funding Mortar-and-Brick vs. Online Retailing
With another million square feet of retail selling space, are the Yards a harbinger of things to come, or a final hurrah? This is a gamble for both the developers and the tenants. Yet, the retail space will be 90 percent occupied on opening day, a remarkable feat. Some tenants, those willing to make early commitments, received “get out of jail free” cards of short-term one- or two-year leases, rather than the standard 10-year lock downs.
The retail “Shops” will be anchored by a three-story 190,000 square foot Neiman Marcus department store, the retailer’s first New York City location, and will include other luxury stalwarts such as Cartier, Fendi, Dior, and Louis Vuitton, as well as online brands opening mortar-and-brick shops including Mack Weldon, Warby Parker, and M.Gemi. And, on the more mid-market end of the retail spectrum, additional storefronts will include Madewell, Zara and H&M,
“These things never come without risk, but when you take the project as a whole into consideration, there are so many things going for it that are unique,”
says Jim Gold, departing president and chief merchandising officer of Neiman Marcus.
“There’s real substance at Hudson Yards and if you want to go shopping for the day and not be exposed to the elements, it’s a great alternative with a full department store and a phenomenal lineup of stores, from utilitarian through luxury.”
Consumers are spending more on experiences, travel, fitness and entertainment rather than clothes, hard goods and accessories; Euromonitor predicts apparel spending will grow just one percent annually in the next two years, down from nearly four percent in 2016. Whereas fitness, museums, and dining grew at 6.3 percent between 2014 and 2016, according to a 2018 McKinsey report.
These shifts in consumer preference are driving mixed-use retail concepts across America, and specifically at Hudson Yards. Overall blended experiences, rather than specific stores, brands or classifications, are hoped drive revenue. The whole is planned to be greater than the sum of its parts.
“Retail is as equally important as the restaurants, as equally important in programming hotels and cultural facilities, and all of those things become the matrix that make up the customer perception,” Related Urban president and chief executive Ken Himmel states.
“It’s about quality experiences at every element they touch.”
Key Questions, Opportunities and Challenges:
Under-served or small addressable market? The far West Side of Manhattan has been a “dead zone” for decades. Will the Hudson Yards combination of retail, residential, office, and entertainment space combine to create a compelling magnet for new residents and consumers? Will Santa move from Macy’s in midtown, to Hudson Yards?
Is there room today for this luxe retail concept? New York City is an expensive, crowded space. Despite closures of retail flagships including Ralph Lauren, Calvin Klein, Toys R Us, and others, new and upgraded Manhattan flagships include Tiffany, Nike, RH Restoration Hardware, and Nordstrom.
Many of the stores, restaurants and entertainment providers already have more than one location in Manhattan. Will the Yard’s shops and restaurants draw people and business from different parts of the city, changing shopping and transit habits? Are 40,000 office workers and 4,000 residents a scalable, captive audience?
Is residential and office real estate the real money maker for Hudson Yards’s developers, and everything else is “an amenity?” Some real estate brokers have stated that Related will count on commercial leasing and condo sales for profit, rather than retail. If so, where does this business model leave retail tenants?
The scorecard for “vertical” retail malls in New York City is littered with good intentions and many closures: Columbus Circle is the exception that proves the rule. Will Hudson Yards succeed where most others have failed? Does New York, or anywhere in the North America, really need another one million square feet of retail space in this evolving retail landscape?
In the new, emerging era of retail are the Yards a shot in arm or a shot in the head? Time, and money, will tell.
(c) David J. Katz, 2019 – New York City (east of Hudson Yards)
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