09.16.2016 LIBN | Open for business
By David Winzelberg
As the days grow shorter and cooler, Long Island’s summer playground exits its busiest season. But just because the vacationing crowds dwindle, business on the East End doesn’t go into hibernation.
In fact, more and more retail real estate out east is now open all 12 months, catering to an increasing number of year-round residents and visitors enjoying the fall and winter in the Hamptons and the North Fork.
Years ago, there were plenty of so-called “pop-up” shops on the East End, where retailers opened just for the summer season looking to cash in on the area’s free-spending tourist trade and seasonal residents. Lately, however, as rents have skyrocketed, more retail spaces are being occupied by businesses seeking revenue throughout the year. In and around East Hampton’s Main Street, retail spaces can fetch as much as $300 a square foot, making it prohibitive for national brands to invest money in building out a store and only stay for the season.
“East End retail was much more seasonal years ago. Now, most are out there through at least New Year’s,” said Jayson Siano, a principal of Garden City-based Sabre Real Estate Group.
Siano’s colleague Stephanie Zulic, a Sabre retail broker who specializes in commercial real estate on the East End, said owners of retail real estate in the Hamptons try to secure five- to 10-year leases. But many of them get nervous if their property isn’t rented by April and they’ll end up leasing it for that summer.
“Landlords would rather have year-round tenants,” she said. “Many sign a one-year lease that starts in April or May and they can choose whether or not to stay open the whole year.”
Zulic added that at least a third of the area’s retail stores close between January and April and most reduce staff and hours in the off-season, though they remain open.
But an increasing number of retail spaces on the East End are being occupied year-round by lifestyle tenants, like food, fitness and service businesses. The fitness boom has especially helped bring more year-round tenants to retail real estate out east, with concepts such as Flywheel, Barry’s Bootcamp and Tracy Anderson having their only Long Island locations in the Hamptons.
The newest crop of year-round retail tenants here includes SLT (Strengthen Lengthen Tone), which signed a long-term lease for 1,100 square feet at 16 Hill St. in Southampton; East End Row, which offers rowing-based workouts, leased a 1,350-square-foot store at 33 Hill St.; and the aforementioned Barry’s Boot Camp, which took a long-term lease for a 6,000-square-foot space on Montauk Highway in Water Mill. Among other non-fitness, year-round tenants signed this year was the restaurant Union Cantina, which took the 6,000-square-foot restaurant space on Bowden Square formerly occupied by Southampton Publick House, and French Presse, a store that cleans, designs and stores linens and other specialty fabrics, which leased 1,100 square feet at Amagansett Square.
Some owners of East End retail properties are making substantial investments in repositioning their real estate to reflect an increase in demand for year-round business.
Manhattan-based shopping center developer RD Management is in the midst of a multi-million-dollar renovation at its easternmost retail property, a five-building, 29,314-square-foot shopping plaza called The Mill.
The company purchased the horseshoe-shaped center on 3.5 acres in Water Mill for $7 million in 2013 when it was half vacant.
A year after it took ownership, RD renovated the empty 4,500-square-foot store last occupied by Blockbuster Video and leased it to the growing fitness chain SoulCycle. Now, its two main vacancies are a two-story, 7,000-square-foot building last occupied by a Citarella grocery store and another 4,000-square-foot space in a separate building.
RD principal Rick Birdoff said the former Citarella space is ideal for another food market or specialty-grocer tenant and the other space is being renovated to hold one or two restaurants, with a new outdoor patio and newly installed French doors. One of The Mill’s best features, Birdoff said, is its 125 parking spaces.
“There are very few retail real estate properties out east that have their own parking, let alone that amount of spaces,” he said.
As for tenant mix, Birdoff eyes merchants and restaurateurs for all seasons to fill The Mill.
“We’re trying to build a tenant roster that will have a year-round appeal, to attract both seasonal and year-round residents,” Birdoff said.
The areas east of Riverhead have an under-supply of retail, mostly due to the high costs of land, zoning restrictions and community opposition to new developments. One of the most popular –and successful – year-round retail destinations on the East End is the 287,500-square-foot Bridgehampton Commons shopping center owned by New Hyde Park-based Kimco Realty, where some of its tenants, such as King Kullen, K-mart and TJ Maxx, have some of their best-performing stores.
“And that’s not done just three months out of the year,” said Joshua Weinkranz, Kimco’s president for the Northeast region. “There certainly is a peak during the summer, but there’s also a peak around the Christmas season, which is almost as big as the summer.”
Rents at Bridgehampton Commons are a little higher than at other centers on Long Island. But they are less than half of the rents for some of those downtown stores in the Hamptons’ tony hamlets.
“It also has a different type of tenant and it’s anchored by a grocery store,” Weinkranz said. “The East End is definitely under-retailed, especially for that type of tenant.”
Across from Kimco’s center, developer Carol Konner is planning to build a retail complex on 13 acres on the south side of Montauk Highway that would include a new 27,000-square-foot Equinox fitness center. First pitched more than three years ago, the project known as Gateway at Bridgehampton was originally slated to have some affordable housing, but has since run into some community opposition over its size and concerns about traffic.
Chris Nuzzi, vice president at Advantage Title and a former Southampton Town Councilman, grew up in East Hampton and remembers there were much fewer year-round retail stores when he was younger.
“People more and more have come to discover what the East End offers, not just in the summer but in the off-season as well,” Nuzzi said.
And though the demand is there for more retail, he said there’s a limited supply of property and a high barrier to entry because the land is so expensive. Another obstacle is East Enders themselves.
“Residents in the community want any development to respect the character that we’ve come to appreciate,” Nuzzi said. “They want to preserve open space and not allow rampant development.”
That thought was echoed by Anthony Manetta, consultant for HB Solutions, a subsidiary of the Harris Beach law firm, and former head of the Suffolk County Industrial Development Agency.
“It’s a balancing act that developers and elected officials and community groups look to strike on the East End,” Manetta said. “There may be more of an appetite for redevelopment opportunities, which is an area that developers should consider.”
Meanwhile, retailers stymied by high rents in Southampton and East Hampton have been seeking out locations in more affordable and less stodgy areas.
“Traditionally, East Hampton’s Main Street has always been the hottest, trendiest retail corridor in the Hamptons,” Siano said. “It’s significantly over-priced and dominated by luxury brands because transplants from Manhattan want to see the same brands they’re used to seeing in the city. A lot of them, like Hermes and Gucci, come in for a season and then leave.”
As an alternative, places like Montauk, Amagansett and Bridgehampton have been more in demand lately because rents are more reasonable and their environments are measurably more hip.
Still, while more restaurants and stores may be open year-round, retail opportunities on the East End are limited and remain pricier overall than most other real estate on the Island.
“The high retail rents are a product of supply and demand,” Zulic said. “They can’t build up and they can’t build out.”