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Apr 15, 2009 1:39 PMPublication: The Southampton Press

Rents on retail space remain the same despite downturn in economy

Apr 15, 2009 1:39 PM

The same harrowing tales of falling home prices and summer rental rates in the region apparently do not apply to commercial real estate, according to several businesspeople with a hand in real estate who were interviewed recently.

The asking price for leases for retail spaces has stayed steady, and if it does budge, it will not go down by much, they said.

“This is a really tough environment nowadays, so you have to be able to really listen to what the tenant is offering,” said Carlos Flores, an assistant to a Southampton Village property investor. “But at the same time you have to stand your ground because people have mortgages to pay.”

Mr. Flores said dropping rental prices drastically to fill a couple of empty storefronts can bring down the value of a property as a whole. He compared it to when a home is foreclosed: The whole neighborhood becomes less desirable.

His boss, whom Mr. Flores asked not to be identified, owns three buildings in Southampton Village, a total of 13 storefronts. Four of the storefronts are still empty this spring, though in better economic times lessees would be moving in and setting up shop around this time, Mr. Flores said.

“2009 became the year that people finally just gave in ...” he said. “2008 is the year that people tried to get through.”

Mr. Flores said most leases used to have terms of at least a couple years, and the shortest leases were for a year, or maybe eight months. But now about half of the potential tenants are looking for lease agreements that are as short as just four or five months, he said.

When it comes to existing tenants looking to renew their leases, Mr. Flores said he hasn’t run into any lessees looking to negotiate a lower price. But he does makes deals for long-standing tenants. He said he’ll offer a different storefront that has become available, which may be a little bit bigger than what tenants are currently leasing, for the same rate they are already paying. “You’ve got to be able to play chess, in a way,” he said.

Besim Cukaj of Besim’s Fine Cigars in Southampton Village cut a deal with his landlord recently.

Besim’s is located in the retail block at 46 Jobs Lane, abutting the sidewalk. But Mr. Cukaj is trading in his storefront for a neighboring one, the former Norahs, which is set back from the sidewalk by a few steps.

He said the move is saving him 30 to 35 percent on rent, and the space is a little bigger than his current store. All that savings for moving just a few feet away from the sidewalk, where commercial real estate comes at a premium.

By reducing his overhead costs, Mr. Cukaj will make up for the business he lost when the economy took a dive. He said that at the beginning of 2008, his store took a 15-percent hit. He attributed it to fewer construction workers, plumbers and electricians coming to Southampton Village for work.

As the economic downturn has make it harder for some landlords to find tenants, Southampton Town Planning Board Chairman Dennis Finnerty said there has been a significant slowdown in commercial development applications in front of his board.

Mr. Finnerty said he can’t say how many new commercial buildings are cropping up.

“It’s hard to tell, because oftentimes people will secure permits for a project then keep it in their back pocket,” he said. And now, he said, site plans that were approved in the last two or three years are coming back to the Town Planning Board for reapproval because the developers never broke ground. For the most part, they are waiting for a tenant before they start to build, and sometimes they wait so long their permits expire, he said.

“They don’t want to move forward in a very tenuous economic climate,” Mr. Finnerty said. When the economy was better, builders would develop a property on speculation and expect they could rent it out with ease, he said.

Real estate investor Leslie Feldman is not letting the state of the economy deter him. “If you build it, they will come,” he said.

Mr. Feldman is one of five investors who bought the former Yawney Motors in Southampton Village and now plan to raze the former car dealership and replace it with a retail strip. He said he is not going to wait for the economy to turn around and will be ready to build as soon as Village Planning Board approvals go through.

“I don’t see any point in not going ahead with it,” Mr. Feldman said. “I don’t see that in retail. Not here, in the middle of a thriving village.”

Philip Futterman of Manhattan real estate group The Futterman Organization said he is having considerable difficulty finding tenants for vacant storefronts on Windmill Lane and Hill Street in Southampton Village.

“It’s particularly bad in Southampton and other places where you don’t have the ability to bring in uses which would attract people to the village ...” he said. “We have to stick within the confines of grandfathered uses.”

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It must be nice living in delusional la la land. Have these idiot landlords considered that empty storefronts lower property values more than reduced rents? What business in their right mind would open an outlet in a strip with empty stores? And believe it or not, there is this pervasive little thing called the, um, recession that is about to slam the East End this summer in unprecedented ways. But I suppose that doesn't matter to any of these morons because real estate only goes up and up, ...more
By HEJIRANYC (32), Sag Harbor on Apr 16, 09 10:55 AM