Hudson Yards Bets $2 Billion a New Manhattan Mall Can Succeed

(Bloomberg) -- Developers and retailers have made a $2 billion wager that a new shopping mall can prosper in New York.

The Shops at Hudson Yards, opening to the public March 15, has been given the herculean task of luring consumers to what was once a commercial desert—a section of Manhattan’s West Side hemmed in by a commuter rail yard and the massive Jacob Javits Convention Center. The windswept streets along the Hudson River were once bereft of window-shopping pedestrians and spendthrift tourists.

But the High Line helped change all of that. The elevated railroad-turned-gentrification artery has remade the landscape, with hotels and a major museum springing up around it. The tourist attraction also triggered a luxury arms race of glass condominiums, pricey restaurants and chic boutiques. Now comes a brand new mall to rule them all, sucking in tourists and anyone else looking to spend a lot of money. 

The Shops is just one piece of the $25 billion Hudson Yards behemoth being constructed by Related Cos. and Oxford Properties Group. The mall’s management is counting on the patronage of locals, tourists and those who work and live in the 28-acre mixed-use project. Now that it’s built, the question is will it become a hub of Manhattan’s retail scene or just another collection of upscale shops cut off from the rest of the city.

“New York City is not a shopping-mall city, so this is a real test,” said Mitchell Moss, a professor of urban policy and planning at New York University. “The greatest challenge is they have to make it part of New York.”

Hudson Yards Bets $2 Billion a New Manhattan Mall Can Succeed

The shopping center checks many of the prerequisites. Once visitors step through the glass entrance to the 720,000-square-foot (67,000-square-meter) retail tower, they’ll have close to 100 stores to choose from, including New York City’s first Neiman Marcus department store—a star anchor. Afterward, they can wolf down a cheeseburger at Shake Shack or enjoy an expensive meal at the acclaimed Estiatorio Milos. After-dinner activities can include a sunset trip to the observation deck or a show at the Shed, a new performing arts theater right next door.

Situated between 34th Street and 30th Street, Hudson Yards hopes to attract visitors from the surrounding neighborhoods. But a big bet is on the High Line, which snakes through the development like a conveyor belt of tourist dollars.

The High Line, for the uninitiated, is a park and tourist hot spot built on what was once a freight railroad along Manhattan’s West Side. Each year, about 7 million people trek up a flight of stairs to the urban park, which extends 23 blocks from the new Whitney Museum to Hudson Yards. According to an analysis by mobile data firm Alexander Babbage, visitors spent an average of 94 minutes on the greenway last year. Such an extended stay may be critical to the new mall’s success, since it presents a shiny, spacious destination for strollers seeking a drink, a meal or even just a restroom. Once inside, the hope is that the money will begin to flow. 

Hudson Yards Bets $2 Billion a New Manhattan Mall Can Succeed

According to Babbage, the demographic of High Line visitors is well-suited to what Yard retailers have in mind. They skew younger, more educated and decidedly wealthier than the average American. In fact, they’re 117 percent more likely to have a household income of at least $100,000, Babbage said.

This is good news for the Shops, since tourism may have to pick up the slack for residents who don’t live nearby. For New Yorkers farther afield, long blocks and a lack of convenient transit (there’s only one, recently constructed subway station) may dissuade many from visiting. 

Webber Hudson, an executive vice president for Related, doesn’t seem all that worried. What will make the Shops a success, he said, is the variety of stores and customer service. Employees clad in suits and armed with iPads will help shoppers navigate the complex, make dinner reservations, purchase tickets or ship purchased items home.

“Our offering is going to be the human touch,” said Hudson, who runs the mall’s retail leasing. “It’s going to be a customer service group that doesn’t just sit behind the desk, but is roving the project at all times.”

Hudson Yards Bets $2 Billion a New Manhattan Mall Can Succeed

Hudson said that 86 percent of the shops will be open next week; he expects from 15 million to 22 million visitors per year, or around 40,000 to 60,000 people a day. That compares with 15 million annual visitors at Time Warner Center, another complex developed by Related that includes a mall. Tourists will likely contribute around 40 percent of the shopping traffic, followed by office workers, at 30 percent, he said. 

Indeed, the mall’s ace in the hole may be its captive audience: The overall development is expected to bring about 40,000 workers to its five office towers. Add to that about 4,000 apartments and a hotel, and Hudson Yards will have thousands of built-in consumers.

But that will take time, since the mall will open before many of those buildings are completed. While the office towers have gained key tenants such as BlackRock Inc., SAP SE and L’Oreal SA, many companies have yet to settle into their new digs. That will limit, at least for now, the number of dedicated shoppers.

“There’s more square footage over there than many cities have in their downtowns, so I think that you have critical mass,” said Michael Hirschfeld, a vice chairman at brokerage Jones Lang LaSalle Inc. The challenge is to get the message out, he said. “Forty-something million people do come to New York City every year, not necessarily thinking, ‘Hey, I want to go to Hudson Yards.”’

For those willing to make the trip, they’ll find that there’s something to satisfy most tastes. Wealthier shoppers can peruse high-end labels such as Cartier and Coach alongside hot upstarts like Mack Weldon, Stance and Rhone. Other top luxury boutiques include Van Cleef & Arpels, Patek Philippe and Rolex. Deal hunters may spend more time in Aritzia, Madewell, Muji and H&M.

Cheryl Kaplan, co-founder and president of online shoe label M. Gemi, chose Hudson Yards for her company’s first-ever permanent store. Kaplan said she was sold by the intersection of offices and homes nearby. It won’t just be a place to go buy some shoes, as if the store were on a traditional shopping street, she said.  

“We were confident in what Hudson Yards is doing because of the marketing they’re putting behind it, the investment they’re putting into it and the level of brands that are in there,” said Kaplan.

Hudson Yards Bets $2 Billion a New Manhattan Mall Can Succeed

New York is no stranger to malls, but they have a tendency to be ignored if insufficiently integrated into the city’s street life. While Hudson Yards shares many of the features of a successful mall—trendy brands, quality food options and entertainment—many of its predecessors haven’t fared so well.

Westfield World Trade Center, the underground shopping complex next to the 9/11 Memorial in lower Manhattan, has struggled to become much more than a transit hub for commuters—a brighter, shinier Penn Station underneath Santiago Calatrava’s Oculus. The nearby Brookfield Place mall lost its inaugural anchor, Saks Fifth Avenue, in just two years because it wasn’t performing well.

And the Manhattan Mall, an aging relic across from the city’s biggest store—the enormous Macy’s flagship in Herald Square—is a shell of its former self, perhaps emblematic of the much publicized fate of its suburban brethren. In the third quarter, U.S. regional malls suffered their biggest occupancy decline in almost a decade, as retailers continued to shutter locations.

While the standard in the industry has been to issue 10-year leases, some retailers at Hudson Yards have signed paperwork for from one year to seven years, said Webber Hudson. Mall owners across the country have increasingly embraced flexible leases as they’ve confronted vacancies brought on by retail bankruptcies and store closures. Shorter-term transactions give landlords flexibility to change the mix more frequently, he said. At Hudson Yards, the established brands have generally committed for longer periods, while the newer stores have inked shorter deals.

“With emerging brands, we lean into them and try to limit the terms to shorter terms because they don’t have the track record,” Webber said. “We need to hedge our exposure so that if it doesn’t work out, we’re not sitting there with something we didn’t bargain for.”

Despite all the obstacles the Shops at Hudson Yards must overcome to be a success, it has one clear advantage.

“The one thing they have going for them is there’s no competition on the West Side,” said Moss, the professor. “They are going to have a monopoly position.”

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