Why retailers are lining up to spend a fortune to be in Times Square

A vacant storefront in the Times Square neighborhood of New York City is a rare sight. If you do see an ‘available for rent’ sign, there’s a good chance that a company is in the middle of negotiating with the landlord and broker to take over that space.

Times Square is one of the few places in the U.S. that is immune to the brick-and-mortar doldrums. Major retailers are willing to pay top dollar to have a presence in the neighborhood just to get domestic and international exposure. The neighborhood, a major tourist destination which has been dubbed the “crossroads of the world,” attracts up to 420,000 people daily, according to the Times Square Alliance, the area’s business development group. Those folks, almost always with a cellphone in hand, are snapping selfies and instantaneously sharing their visit on Instagram or Facebook.

“Brands want to be seen — and this is the ultimate stage to attract attention and shoppers,” said Faith Hope Consolo, chairperson of the retail leasing, marketing and sales division at Douglas Elliman Real Estate.

When Aeropostale filed for bankruptcy in 2016, the teen apparel retailer announced it would be closing its flagship store in Times Square. SL Green Realty Corp. (SLG), the retailer’s former Times Square landlord, decided to carve up the space and filled it, within a year, with three tenants: media giant Viacom (VIA), Italian cosmetics company Keiko Milano, and Line Friends, a global brand of characters that were originally created for use as stickers for leading mobile messenger application Line.

“We ended up getting 30% more rent than what we were getting from Aeropostale,” said Brett Herschenfeld, a managing director at SL Green who leads retail leasing and investment, declining to specify. “You’re seeing big lease transactions in the area still occurring.”

Paying top dollar for storefronts

In October, right before the holiday season, Gap Inc. (GPS) opened a store adjacent to its sister brand Old Navy at 44th Street and Broadway in the heart of Times Square, where Toys R Us’ New York City flagship used to stand before the company filed for Chapter 11 bankruptcy two years ago. The store is “roughly three times larger than your average Gap or Old Navy store” and employs more than 10 times as many people, according to Gap, adding that its among the highest-volume stores in the world. That store opened just a month after the company announced that it would be closing 200 Gap and Banana Republic stores in the U.S. to focus on its other brands — Old Navy and Athletica.

In December, trendy online eyewear brand Privé Revaux, with celebrity backers like Jamie Foxx, opened its first brick-and-mortar store in Times Square. The flagship store, with interactive features, allows visitors to use fun props while trying on glasses to encourage shoppers to social share their images.

Even retailers with an existing brick-and-mortar presence in the neighborhood are expanding. Sephora and Levi’s are more than doubling the square footage they have in Times Square, signing leases for about 16,000 square feet and 17,939 square feet, respectively, reportedly paying more than $10 million in annual rent. Asking rent in the fourth quarter of 2017 was $2,020 per square foot in Times Square, according to CBRE.

“Brands pay a lot more rent in relation to the percentage of sales than they customarily would; it’s more about branding and positioning,” said Gary Trock, a senior vice president at real estate services firm CBRE, which worked on a number of major retail leases in Times Square in recent years, including ones for Junior’s Restaurant and fashion retailer Express.

But that doesn’t mean retailers aren’t counting on tourists to open their wallets. Times Square is an 18-hour shopping district with stores like Gap and Old Navy open from 8 a.m. to 2 a.m. every day. Domestic and international tourists in Times Square spend double and four times more, respectively, than local New Yorkers per transaction, according to the Times Square Alliance.

In Times Square it’s not just about the storefronts, there are the billboards and huge bright LED screens that never go dark. When Line Friends opened its first U.S. store at SL Green’s property, the space also came with a new LED sign. Every lease deal in the neighborhood includes some sort of signage, sources said. And those billboards come with a seven-figure annual rental fee.

Times Square Alliance said visitors to the neighborhood spend on average eight minutes exclusively looking at billboards. And those billboards and flashy signs act as a backdrop for selfies and news cameras. The Times Square Alliance said close to 250,000 people post on social media about their experience in Times Square every day.

“Brands are being exposed on Instagram, social media, 24 hours, seven days a week,” said Consolo. Having a flagship store in Times Square says, “I’m here doing business, don’t cross me off the radar screen.”

Amanda Fung is an editor at Yahoo Finance

This story is a part of Yahoo Finance Presents: The Retail Revolution, March 5-9, 2018.