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NEW YORK CITY-Manhattan’s fledging technology sector is growing up—and it’s slowly graduating beyond Midtown South into new markets.

With more tenants seeking large, loft-like spaces in the borough, sections of Midtown and Downtown are emerging as options for both start-ups and the current crop of larger high-tech companies based on a shift in pricing and availability Chelsea, Gramercy and the Flatiron District.

“There is a lack of product, a growing scarcity in product and rents are being driven up, and tech is going to have to go somewhere else,” Michael Cohen, president of the Tri-State Region for Colliers International, tells GlobeSt.com. “But 2013 is going to be about who is going to be cool enough to attract tech.”

Midtown South – also known as the city’s "Silicon Alley" – has been one of New York’s success stories post-downturn and the poster child for "hip" places to work. According to second quarter research from Colliers, the overall Midtown South vacancy rate dropped to 4% in Q2 2012 from 4.4% in the first quarter, and asking rents for both direct and sublease space averaged at $43.75 per square foot, up from $39.70 at the same time last year. Out of the entire submarket, Chelsea and Gramercy Park both had availability rates in the area of 6.2% and vacancy rates at or below 3%, as compared to Midtown (11%+) and Downtown (16%+).

The "cool" factor, Cohen says, will determine whether Midtown or Downtown will be the biggest beneficiary of the spillover activity from tenants. “We are already beginning to see the glimmerings when a tech company rents space in Midtown and they make a big deal of it,” he says, citing a ‘flurry’ of activity above 23^rd Street, including a building Colliers is marketing in the East 30s at 136 Madison Ave. “Any news they can make – whether it is Midtown or Downtown – about tech moving is going to be big. What everybody wants is for tech to break down the dividing line, which I would say, two months ago, went from 23^rd Street to Canal Street. That northern boundary is going up to the 30s now and older buildings in the Penn Plaza area. It is growing and everybody wants a piece of it.”

When comparing both CBDs, Cohen says price conscious tenants will look to Lower Manhattan first. “There they will find buildings that will rent $30 a foot the way Midtown South did in the good old days,” he says. “Downtown will be the beneficiary not just of tech, but of architects, the engineering firms, the publishers and the other people that can’t afford the dramatic run up in rent in Midtown South. It will be a beneficiary for sure.”

In Midtown, Cohen says that the Third Avenue corridor on the east and the Broadway corridor to the west will also become options thanks to lower rents than neighboring sections like the Plaza District. But the question of tech companies being “comfortable” in modern steel-and-glass skyscrapers has yet to be seen, he adds. “Right now a lot of that type of space in Midtown is still renting much more than Midtown South,” Cohen says. “I don’t think that tech companies are going to buildings on Park Avenue or the buildings that rent for $70 or $80 a square foot. The question is more along Third and Broadway where you have buildings that are renting really for the same rates as the tech buildings in the $20s and teens. Will those buildings be cool enough for tech? That is the big question hanging over the market.”