By Keiko Morris 

Under Armour Inc. hopes to up its game with a sprawling retail store in one of Manhattan's most expensive shopping districts.

The Baltimore sportswear maker's chief executive told analysts Tuesday the company would put "the world on notice" by taking most of the space once occupied by the FAO Schwarz toy store on Fifth Avenue between East 58th and East 59th streets.

The 53,000-square-foot space in the General Motors Building will give the company a showroom in a section of Midtown Manhattan brimming with high-end retail and year-round throngs of tourists.

"Effectively, the goal that we have is to build the greatest single retail store in the world," CEO Kevin Plank said in a conference call with analysts. "And we know that's a big statement with a big company, but I think that that's the opportunity we have."

The stretch of Fifth Avenue is also known for its high rent. Toys "R" Us Inc., owner of FAO Schwarz, cited the rising costs of operating on Fifth Avenue when it closed its store in July 2015.

Under Armour and Boston Properties Inc., the real-estate investment trust that owns the General Motors Building, declined to disclose the terms of the deal.

Earlier this year, Owen Thomas, chief executive of Boston Properties, said FAO Schwarz was paying about $20 million a year and suggested that a deal with a potential tenant would generate a significantly higher rent.

Although asking rents on upper Fifth Avenue have dropped along with those in other Manhattan retail corridors, average asking rents there were still high, at $2,980 a square foot in the second quarter of 2016, according to real estate services firm Cushman & Wakefield.

By comparison, landlords were asking for $2,109 a square foot in Times Square and $361 a square foot on the Upper West Side.

"I think this speaks to the fact that retailers are willing to pay for locations that are important for their company," said Isaac Chera, principal at Crown Acquisitions, which owns a number of highly valued retail properties in Manhattan, Brooklyn and Queens. "In the secondary and tertiary markets, that's where you might see rents drop."

However, some brokers say the high asking rents don't tell the full story. Landlords are able to attract big retailers because they are willing to offer generous tenant improvement packages to pay for costs such as building the store interior, said Ross Burack, a broker with Winick Realty Group LLC.

"These landlords pay tenants millions so they can get their asking rents, " Mr. Burack said. "That's how certain areas, such as Upper Fifth Avenue, are able to keep attracting these retailers at above comparable rents."

Under Armour, known for sweat-wicking clothes and National Basketball Association star Stephen Curry's signature sneakers, didn't release details about the store's design. Mr. Plank noted the company intended to create an "experiential" retail presence.

Mr. Plank said he expected the company to move into the space by the middle of 2019 at the latest.

Like its competitors, Nike Inc. and Adidas AG, Under Armour sells most of its wares through sporting-goods retailers but also operates some of its own brand stores, including one on Broadway in Manhattan's Soho neighborhood.

The company also plans to open a shop at Westfield World Trade Center, the largely underground retail complex at the World Trade Center site.

The Under Armour location on Fifth Avenue "will really position the brand again in the iconic place where we believe that we belong," Mr. Plank said.

The change in tenants in the retail space in the General Motors Building also underscores the maturation of at least one group of consumers, said Adelaide Polsinelli, a principal at real estate services firm Eastern Consolidated.

"The kids who shopped at FAO Schwarz or who were the recipients of that buying are now buying fitness gear," she said. "Those are the toys of the next generation."

Write to Keiko Morris at Keiko.Morris@wsj.com and Sara Germano at sara.germano@wsj.com

 

(END) Dow Jones Newswires

July 26, 2016 21:05 ET (01:05 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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