lululemon Stuart C. Wilson/Getty Images

Lululemon Said in Talks to Fill Sephora's Fifth Avenue Vacancy

Midtown Manhattan has seen retail occupancies plunge as merchants balk at record-high rents.

(Bloomberg) — Lululemon Athletica Inc. is in advanced talks for a one-year lease at a store on Manhattan’s Fifth Avenue, helping to fill space in an area that has recently been plagued by retail vacancies, according to three people with knowledge of the matter.

The active-wear maker is taking 8,000 square feet (743 square meters) at 597 Fifth Ave., across the street from Rockefeller Center at East 48th Street, said the people, who asked not to identified because they weren’t authorized to speak publicly. The space was vacated in March by Sephora, which has moved to another location on the east side of Fifth Avenue.

Representatives for Lululemon and landlord Thor Equities declined to comment. 

Midtown Manhattan has seen retail occupancies plunge as merchants balk at record-high rents. On Fifth Avenue from 49th and 59th streets -- the world’s most expensive shopping corridor and just a block north of the store Lululemon is said to be zeroing in on -- rents averaged $3,324 a square foot, down 2 percent from a year earlier, according to a report released Monday by the Real Estate Board of New York.

Pushing Rents 

Landlords in Manhattan had overestimated tenants’ willingness to pay premium prices, according to Gregory Kraut, managing partner at developer K Property Group.

“People were pointing to outliers on Fifth Avenue as the norm,” said Kraut, a co-founder of brokerage Avison Young’s New York office. “If someone was pricing their space at $2,000 a square foot, the next person says, well, this should be worth $3,000 a square foot. What happened was a confluence of events, where there started to be a lot of spaces popping up, and there weren’t a lot of tenants who could afford to pay that dollar amount.”

Fifth Avenue from 42nd to 49th streets had average rents of $1,185 a square foot in the first quarter, down 4 percent from a year earlier, according to brokerage Cushman & Wakefield Inc. The availability rate in the area was 32.8 percent, compared with 17.4 percent for the stretch from 49th to 60th streets. 

Thor Equities has a $105 million loan on 597 Fifth Ave. that’s part of a multiproperty commercial mortgage-backed security originated by UBS Group AG. The loan is watchlisted, according to data compiled by Bloomberg, meaning it’s been identified by analysts as a potential credit risk.

The Beaux Arts-style tower, also known as the Scribner’s Building after the publisher that once occupied it, was completed in 1913. It was designated a city landmark in 1982. Thor, whose president is Joseph Sitt, acquired the 79,000-square-foot property in 2011 for $108.5 million, according to a person with knowledge of the deal. A refinancing in 2014 valued the building at $140 million.

A short-term lease to Lululemon is potentially a shrewd move for both sides, Kraut said.

“Retailers want to see they’re not catching a falling knife,” he said. As for the landlord, “it’s always better to lease something with somebody in it.”


To contact the reporters on this story: David M. Levitt in New York at [email protected] ;Kiel Porter in New York at [email protected] ;Lindsey Rupp in New York at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Christine Maurus, Kara Wetzel

© 2017 Bloomberg L.P

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