The Real Deal New York

Garment District offices in fashion

October 16, 2007
By Will Swarts

Businesses outside of the apparel industry are giving the Garment District a gradual makeover of its commercial tenant base, but its mantle as the next trendy locale for offices isn’t quite ready-to-wear.

Advertising agencies and other small, creative businesses are starting to fill spaces left by the now mostly decamped manufacturing side of the clothing industry that marked the area from 35th Street to 42nd Street between Fifth and Ninth Avenues as the Garment District. It is now officially known as the Fashion District.

But history, zoning and neighborhood landlords are slowing redevelopment of the 32-block region, also known by brokers as Times Square South. Although its average rents are cheaper than the rest of Midtown Manhattan, it’s still a working neighborhood, lacking amenities such as restaurants and night spots that round out an area where service industry workers will linger and help its overall development.

Ira Fishman, a vice president at Winoker Realty and longtime broker in the area, says the change in neighborhood names reflects the transformation of the district’s dominant industry, and heralds further erosion of its historical roots.

Fishman says that the rag trade was clearly the leading industry a generation ago.

“Back in the Seventies, you had buildings that were all specialty use buildings,” Fishman says. “That one was a coat building, that one was a dress building that was when women still wore dresses to work and it was so itemized. A garment was made in a specific building.”

But manufacturing offshore whether off the shores of the Hudson River in New Jersey, or over in Asia established itself as a cheaper alternative, and much of the large open floor spaces in the west 30s fell into disuse.

The old days are gone, says Fishman, but a new identity isn’t yet cemented. For brokers and tenants willing to be ahead of the curve, function may lead form in the Fashion Center. It sits between Manhattan’s three largest transportation hubs, west of Grand Central Station and bracketed by Penn Station and the Port Authority Terminal, and brokers are quick to promote its location.

Figures from Cushman & Wakefield’s August report on Midtown office leasing show that Times Square South accounted for 1.6 million square feet of leases, or 12.5 percent of the total space taken that month.

“That area has definitely changed and is a non-manufacturing area,” says Paul Walker, a vice president for leasing at CB Richard Ellis. “The two appeals are proximity to transportation and the price.”

He says below average Midtown lease rates will keep drawing new businesses in, despite protectionist legislation signed in 1986 as a concession to the once-influential Industrial Ladies Garment Workers Union, which prevented landlords from making more than 50 percent of certain buildings available as office space.

Despite the efforts of the ILGWU, the moribund manufacturing sector is a shadow of its former presence in the district as small designers are taking over the industrial share of the tenant base, accounting for only 33.5 percent of total employment in 2003, according to the Fashion Center Business Improvement District report.

According to Cushman & Wakefield, the average August lease rate for Times Square South was $29.85 a square foot, only 62 percent of the Midtown average of $48.04. Subleases are even cheaper, with a district average rate of $27.58 a square foot, or 61 percent of the average Midtown rate of $44.86.

“In the nineties, you had an influx of offices,” Fishman says. “The garment tenants had stopped doing their sewing and cutting, and even stopped doing their shipping, and little by little there were fewer and fewer manufacturers around.”

Late arrivals to the dot-com boom of the Nineties drifted north of the Flatiron District, unable to find space in the then-pricey Silicon Alley area, but most of those companies crashed hard and were gone by 2001, Walker says.

What really cemented the Fashion District’s potential was the 1999 deal that put advertising agency Bates USA into 400,000 square feet of office space at 498 Seventh Avenue.

“That’s when there was a permanent change,” says Fishman. “Little by little, the sportswear and casual wear showrooms began to leave and the offices took over.”

But the effects of the Internet boom were somewhat fleeting, Walker says.

“There was a flight to quality when the market dipped in 2002, as prices dipped in more prestigious neighborhoods, businesses that were still around said they didn’t want to be in second-class neighborhoods when they could be in better ones for the same price.”

At the same time, landlords were unwilling to spend money to adapt old manufacturing spaces for office tenants, and Walker says that’s resulted in a bit of a stalemate.

Matt Astrachan, executive director at Cushman & Wakefield, says that is starting to change, and that with a little extra work, variances can be granted to allow higher proportions of office tenants. He says one recent deal fuses past and present in the Fashion District Calvin Klein’s renewal on a 150,000 square foot lease at 205 West 39th St. is for office space only.

“They don’t do any manufacturing over there, just offices,’ he says. “There’s a lag between what was and where we are going here.”

Astrachan says the neighborhood is underutilized for office space, but that major landlords, including Williams Real Estate, Kaufman Adler, Newmark and Adams and Co. Real Estate will eventually be able to capitalize on the Fashion Center’s natural advantages of location and price, while relying on the newer crop of smaller designers and showrooms that still make up at least a third of the area’s workforce.

“In a down market, we were still outperforming, because the industry tenancy was stable,” he says. “Now we’re still outperforming, and we’re always considering new office tenants. The [permanent] change isn’t really going to happen until you have the ability of some of these buildings to rent to pure office tenants, and right now they technically can’t. It’s still underutilized.”

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