Pedestrians walk past a Chick-fil-A restaurant in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Manhattan Has Too Many Restaurants, and It Could Hurt Landlords

(Bloomberg) -- Manhattan: home of towering skyscrapers, pizza rats and, apparently, too many places to eat.

Restaurant sales make up a significantly bigger piece of the pie in the Big Apple than in other parts of the U.S., and that could cause a problem for landlords, according to Morgan Stanley. Eateries represent 34 percent of retail sales in Manhattan, up from 29 percent in 2010 and more than double the national rate.

“Demand for space from restaurant sectors may be overdone,” Morgan Stanley analyst Vikram Malhotra wrote in a note to clients on Wednesday. “If we see a pullback in restaurant demand for space, it could put additional pressure on Manhattan street retail rents.”

Quick-service brands like Chipotle and Panera have recently closed stores in Manhattan, Morgan Stanley noted.

Retail sales growth in New York City has typically been higher than the national average, but has underperformed in recent years as high costs priced out merchants. The situation has been tough for landlords, who have been forced to offer sweeter deals. Asking rents have fallen 15 percent since peaking in 2015, according to the note.

The market’s correction may help attract more retailers and fill vacant stores -- a positive for landlords. There are caveats, of course. In addition to the risk from restaurant saturation, Morgan Stanley said retail rents may need to come down further before there’s a sustained increase in demand. Rising wages may also prompt retailers to move to cheaper areas to counter higher labor costs.

©2018 Bloomberg L.P.