September 26, 1:56 PMBoston Real Estate ExaminerDan Guenther

Streetscape view of the sunny side of tree-lined Newbury Street.

Between depressed retail sales and high rents, a number of stores have closed their doors on Newbury Street during the past twelve months.  A few of these shopkeepers have gone out of business, but many tenants are simply relocating to more affordable space in other locations or are making good with their remaining stores in the Boston area.  Tess & Carlos, a women’s clothing boutique, vacated 141A Newbury in January, while still operating stores in Newton Centre and Cambridge.  Envi, an eco-fashion boutique with a growing online business, relocated to studio space in the Leather District.  Kitchen Arts and Bliss, among other retailers, opted to relocate a bit further west on Newbury Street where rents are cheaper.

Challenges faced by retailers are illustrated by sales at Pottery Barn, a part of Williams-Sonoma, Inc.  Comparable store sales at Pottery Barn were down 16% in the second quarter of this year versus the same quarter last year, and down almost 30% from two years ago.  Nonetheless, Williams-Sonoma plans to close only seven of Pottery Barn’s 204 stores this year, while opening five new stores.  Unfortunately, the Pottery Barn on Newbury Street was one of the casualties this year.

Art galleries, mainstays on Newbury Street that add flair and cachet, have been noticeably impacted by the severe recession.  Four art galleries have closed in recent months, leaving around twenty art galleries on Newbury Street.  Chase Gallery relocated to 450 Harrison in the trendy South End this summer, taking over space previously occupied by OH+T Gallery which closed at the end of June.  Mercury Gallery has maintained its summer venue in Rockport while exploring smaller spaces on Newbury Street, hoping to return this fall.  Kidder Smith Gallery is also “in transition”.  The owners of Nielsen Gallery, however, decided to take some time off, perhaps a year or two, while the economy remains depressed.

While it’s tempting to primarily blame the ravaged economy, the current shake-up along Newbury Street was foreshadowed before the global financial crisis even flared up last year.  Leases that had been signed in the 1990s before average market rents reached a peak of about $120 per square foot in mid-2001, or were signed during the 2001-2003 property slump, were by early 2008 well below average market rents that had climbed to $150 per square foot according to Cushman & Wakefield.  Unless a landlord was inclined to forego charging top market rents as a very generous favor, many tenants knew they might soon be priced out of their current spaces on Newbury Street.

Frustration with how high rents have also eroded the eclectic mix of specialty retailers, fashion boutiques, art galleries, and one-of-a-kind shops on Newbury Street continues to mount for the more exclusive shops that still cater to the affluent carriage trade.  Louis Boston, the always stylish and popular men’s and women’s clothing store at the corner of Berkeley and Newbury Streets, underscored this disappointment last year by declaring that a relocation away from Newbury Street is likely in 2010 when the current lease expires.

Many property owners take a more optimistic view of how Newbury Street is evolving.  First, the valuable eclectic mix on Newbury Street has never been one of 100% exceptional, thriving shops, boutiques, and restaurants.  Allowing the Darwinian dynamics of the marketplace to cull weaker shops from the tenant mix is healthy.  Second, bringing in new, thriving, trendy retailers is usually a good thing from owners’ perspectives as they attract more shoppers to Newbury Street and prime the urge to spend in multiple stores just as when shopping at a suburban lifestyle center.

By far the largest owner of retail properties along Newbury Street is the joint venture between Taurus Investment Holdings, Anglo Irish Bank Corporation plc, and UrbanMeritage, LLC.  This international investment team operates The Newbury Line, a portfolio of 22 properties in the Newbury Street area representing an investment of around $120 million.  Mike Jammen, owner of UrbanMeritage, LLC and a principal of The Newbury Line, estimates that this “urban retail agglomeration” controls roughly 10% of the commercial properties on Newbury Street, providing efficiencies in property management, unique branding, and valuable marketing opportunities for tenants.  Jammen says that his team aggressively seeks out thriving fashion houses and trendy apparel firms ready to expand their branded stores, as well as leading specialty retailers, by visiting them in person in the fashion capitals of Europe, in Manhattan, and in Los Angeles, among other places.  Jammen notes that their preferred tenants “don’t want a mall location and are doing very well as destination stores” in settings such as Newbury Street.

Efforts of this nature by owners to keep Newbury Street vibrant and trendy appear to be working.  True Religion Jeans, based in the L.A. area, arrived on Newbury Street in June last year.  Ben Sherman now brings British mod fashions.  Another expanding L.A. apparel firm, 7 for All Mankind, has opened a temporary “pop-up” shop known as the Boston Wash House.  Designer Cynthia Rowley opened her newest boutique in May in the space previously occupied by Envi.  After buying new clothes, shoppers can now also indulge with rich chocolate specialties at the new Hotel Chocolat at 141A Newbury Street, in the space that Tess & Carlos formerly occupied.  Vacant space is fleeting on Newbury Street, and with market rents down 10% to 20% from peak levels last year, a new mix of trendy retailers is already emerging.

From The Newbury Line Staff…Thanks to Dan and the Boston Real Estate Examiner for writing a balanced article…keep up the good work.

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