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Want Retail Space on Madison Avenue? Now's the Time to Invest

Oct 18, 2020 by Maurie Backman

Manhattan's Fifth Avenue may be synonymous with luxury shopping and tourism, but Madison Avenue has long held its own as a nearby high-end corridor. But recent sales data reveals the lure of Madison Avenue may be waning thanks to the impact of the coronavirus pandemic.

Just recently, three retail buildings on Madison Avenue sold for $45 million combined. In normal context, that may sound like a lot, but let's remember: This is Manhattan, and for a once-desirable spot like Madison Avenue, that's actually a steal. Luxury retailer Akris will buy properties at 831, 835 and 837 Madison Avenue between East 69th and 70th streets for this price tag, which amounts to $1,340 per square foot. For context, back in 2014, Madison Avenue properties were selling for $7,589 per square foot. In fact, this specific deal is the lowest one on record for Madison Avenue in a decade, according to Cushman & Wakefield (NYSE: CWK).

Obviously, all of this is very bad news for real estate investors who already own property in Manhattan they're looking to unload. But investors looking to add to their portfolios have a major opportunity to buy on Madison Avenue at almost unbelievable lows.

Manhattan real estate is struggling

It's not just commercial buildings in Manhattan that have seen a substantial drop in demand in the past few months. Manhattan apartment sales declined 46% in 2020's third quarter, and the city's vacancy rate is so high that desperate landlords are giving away free rent to attract tenants.

But the demand for high-end retail in particular has declined substantially since the coronavirus pandemic began, namely because these stores cater to a very specific clientele. The people who shop on Madison Avenue aren't there to stock up on basics; they regard shopping as an experience, one difficult or impossible to enjoy since early March.

Investors looking to buy in one of Manhattan's most notable retail corridors clearly have an opportunity to capitalize on some of the lowest prices we've seen in years. But there's a risk in buying Manhattan real estate right now, particularly in the context of luxury shopping districts. It will likely take the city a fair amount of time to recover from the coronavirus pandemic and for the idea of walking into a store to resemble the experience it was before the outbreak took hold. While now may be a good time to snatch up Manhattan real estate on the relative cheap, it will likely take years for buildings on Madison Avenue to appreciate in value. And for the time being, those investments may not serve as a viable revenue stream, but rather an ongoing expense.

Right now, a lot of high-end retailers are looking at store closures. On Fifth Avenue, luxury brand Valentino SpA is actually suing its landlord in an effort to break its lease. Buying a building on Madison Avenue could therefore mean having it sit unoccupied as luxury retailers ride out the coronavirus storm elsewhere.

The Millionacres bottom line

Still, investors with steady cash flow may want to jump on the chance to buy on Madison Avenue. With prices hitting record lows, those with the ability to sit tight for a year or so could ultimately turn a huge profit when Manhattan is restored to its former glory and life returns to normal.

Unfair Advantages: How Real Estate Became a Billionaire Factory

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.