It’s well-documented that Midtown South has become New York’s hub of new technology and media. But with available office space in the area growing scarce, tech activity is moving north, causing some to predict that the traditionally stodgy Midtown market could become (at least a little) hip.
Midtown South has outperformed other Manhattan markets over the past two years, with the sharpest rise in asking rents and the steepest decline in availability. That’s driving some tech tenants to consider lower-priced, postwar office buildings in Midtown.
Colliers International vice chairman Brian Given said last month during the firm’s third-quarter briefing that he’s working with a tech firm looking for space near Grand Central. The company, he said, is interested in postwar office buildings. Other companies will soon follow suit, he predicted. “In another 10 years, these old Emory Roth buildings that don’t have columns and that have nice, clean floor plates will be in vogue again,” Given said.
Not all brokers agree.
“Saying Midtown could ever be cool is like saying a state trooper writing out a speeding ticket is cool,” said James Wacht, president of commercial firm Lee & Associates NYC, during a panel discussion sponsored by business publisher Bisnow last month.
The Manhattan market, meanwhile, remained relatively static. Available space remained flat at 10.3 percent between August and September, preliminary figures from Cassidy Turley showed. At the same time, asking rents ticked up slightly, rising $0.62 per foot to $56.52 per square foot.
Midtown may still be no cooler than a speeding ticket, but overall market activity there was strong last month.
According to Cassidy Turley, average asking rents rose by $0.88 per foot to $64.46 per square foot, and the availability rate dropped by 0.1 points to 11.1 percent. Yet brokers described a nagging feeling that the market is treading water, in part because of large blocks of space that hit the market last month. That includes 180,689 square feet of the 1301 Sixth Avenue space formerly occupied by the now-defunct law firm Dewey & LeBoeuf.
Dewey once had 474,000 square feet in the building, but landlord the Paramount Group leased 200,000 square feet of it earlier this year.
And across from the New York Public Library, virtually the entire office portion of pension fund TIAA-CREF’s 275,000-square-foot office building 475 Fifth Avenue hit the market, according to a new listing on CoStar Group. A Jones Lang LaSalle team including Frank Doyle, Cynthia Wasserberger, Douglas Neye and Shawna Menifee is marketing the space.
Developer Joseph Moinian and partner Westbrook Partners bought the building in 2007 and emptied it of tenants to rehab it, but lost the property to lender Barclays. The bank sold the building to TIAA-CREF last year for $144 million.
Joseph Harbert, president of the Eastern Region at Colliers, said that stronger activity in 2011 brought with it higher hopes for this year. But those predictions haven’t quite come to pass. “It’s not as good as it was, and it’s not as good as the expectations,” Harbert said during the Colliers media briefing.
As Google takes more space in the office building at 111 Eighth Avenue, it has pushed out other tech companies, who are now looking for space nearby.
One landlord, Erbo Properties, responded by putting 541 West 21st Street up for lease. The eight-story loft building is a block south of 556 West 22nd Street, where Hewlett-Packard signed a lease last year.
Tech firms displaced from the Google building — among other types of companies — could be a good fit for the space, said Erbo’s broker, Itzhaki Properties CEO Isaac Glasman.
“It could be food production, but at the same time it could be high-tech,” he said.
The asking rent to lease Erbo’s building is $35 per foot, according to CoStar.
That price is below the average asking rent in Midtown South, which rose last month by $0.05 per foot to $47.74 per square foot. The availability rate, meanwhile, fell by 0.1 points to 8 percent, Cassidy Turley showed.
The average asking rent in Midtown South has climbed 23.7 percent over the past two years, according to Cassidy Turley. Still, deals in Midtown South are getting done at vastly different price points, even within the same single block.
Colliers broker Given pointed to 23rd Street between Fifth and Sixth avenues, where the buildings have an unusually wide spread in asking prices. Some tenants in L&L Holding’s 200 Fifth Avenue are paying $85 per foot, for example, while some mid-block buildings are doing deals at about $55 to $60 per square foot. Further west, some quality buildings on Sixth Avenue have done deals at about $37 per square foot, he said.
“It’s really crazy when you look at Midtown South,” Given said. “There is a $50-per-square-foot swing within one block.”
Herb Goldberg, commercial division manager for brokerage City Connections Realty, which represents the 350,000-square-foot Masonic Hall at 71 West 23rd Street, disputed that $37 figure. He said asking rents at the Masonic Hall building would likely be between $48 and $55 per foot. “We do not have any available space, and if we did it would be considerably higher than $37,” he said.
The Downtown market was the only one to see an increase in availability last month, even as asking rents rose modestly.
One of the largest Downtown spaces to hit the market last month was 82,274 square feet on two full floors at L&L’s 195 Broadway. The space is currently occupied by the advertising firm Havas, which is moving to Hudson Square. Jason Greenstein, a managing director at Newmark Grubb Knight Frank, is marketing the space.
The Havas lease runs through December 2015, CoStar data shows, but L&L’s David Berkey said the landlord is open to terminating the Havas lease and striking a direct deal.
The asking rent for direct space in the building is $45 per square foot, Berkey said. That’s a bit higher than the overall Downtown average asking rent of $39.38 per square foot, which was up $0.58 per foot last month from August.
The availability rate was 10.3 percent, up 0.1 points from the prior month.