NEW YORK CITY-Call it the “Google effect.” As burgeoning industries continue to flock to Chelsea, the Flatiron District and Hudson Square to establish their Manhattan footprint, new research from CBRE shows that creative and technology firms are the key drivers pumping up demand below 30th Street.
Mary Ann Tighe, CEO of the New York Tri-State Region at CBRE, said Midtown South has evolved into a “culture choice” for tenants instead of just price. “Midtown South was always supposed to be a cheaper alternative to Midtown, and that’s totally changed,” Tighe said, during the firm’s fourth quarter media briefing on Wednesday morning. “It used to be about less expensive rents, but it’s all very different now.”
According to CBRE data, Midtown South saw 5.2 million square feet of leasing in Q4, up from 4.4 million square feet in 2010, making it the highest figure since 2006. The area—comprised of Chelsea, Flatiron, Union Square, Park Avenue South/Madison Square, SoHo, NoHo, Hudson Square and TriBeCa—also saw its availability rate drop from 12.5% in 2010 to 8.8% in 2011 for both direct and sublet space.
Average asking rents in Midtown South are hovering around $45.34 per square foot, but given strong demand near the trendy Meatpacking District, the area is beginning to give Midtown a run for its money. “Near the High Line, you’re starting to prices in the $60s and $70s [per square foot],” said Gregory A. Tosko, vice chairman of CBRE’s New York-based consulting group, during the presentation.
Over the last six months, CBRE posted 24 creative and tech leases, including notable deals such as a 12,064-square-foot lease for fashion firm Gilt Groupe at 1 Madison Ave., a 55,307-square-foot lease for social media company Foursquare at 568 Broadway and a 34,500-square-foot lease for computer giant Hewlett-Packard Co. at 556 W. 22nd St.
Conversely, Midtown is “finding its footing,” Tosko said. The area saw 16.8 million square feet of leasing in 2011, up only three percentage points from 16.5 million square feet in 2010. At the same time, there are bright spots. Office availabilities have come down from 12.2% last year to 11.3% in 2011, and asking rents have gone up by nearly $7, from $55.98 to $62.43 per square foot.
In response to questions about the financial crisis both locally and overseas, Tighe said Midtown landlords and tenants are taking a wait-and-see approach. “One of the reasons why we are seeing landlords trying to test pricing is because that’s where you are feeling it, Tighe said. “You think Downtown is where you would be feeling it most, but in fact, Downtown is well along its way for diversifying. Midtown is still in that phase where they are trying to figure out how this is going to shake out.”
Citywide, the economy is shifting and diversifying. Media and law firm leasing is up by 2%, while financial services has dropped by 3%. In particular, Lower Manhattan has been at the heart of the city’s changing tenant base, where more media, education and nonprofits have leased up space.
As Midtown South continues to tighten, the Financial District has become an alternative. “The perception of Downtown has continued to improve,” Tosko said, describing a “spillover effect “ from Midtown South to Lower Manhattan. “It is very difficult to pry people out of Midtown South. Employees who went there seem to like the diverse nature of what’s around them, but a lot of them went down there to save on rent as motivating factors. You will see some relocations coming from the Midtown South properties to Downtown pre-war properties.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
