First, the advertising firms came. Then the law firms. And the dot-coms, too (those left, though – you know the story). All came to Midtown South, starting in the 1980s, searching for cheaper commercial rents than Midtown and better proximity to transit hubs than Downtown could offer.
These tenants and others – nonprofits, multimedia outfits, financial services firms – have made Midtown South perhaps Manhattan’s healthiest commercial submarket. The overall vacancy rate for Midtown South in November, for instance, was lower than the overall rate for all of Manhattan – and that’s in a month when that overall borough rate dipped to its lowest in more than four years.
The Midtown South rate dropped to 8.4 percent from 9 percent in October, according to a report from Colliers ABR. The overall vacancy rate for Manhattan in November, according to Colliers, was 8.9 percent – its lowest since 8.8 percent in July 2001.
“Historically, I think there was always a certain stigma to being south of 42nd Street, but that has eroded over time,” said Joe Grotto Jr., senior managing director at Colliers ABR. “I think the main thing going on is Park Avenue South was traditionally popular with a lot of service companies that were privately owned. People got good, quality buildings for less of the rent of being above 42nd Street.”
The Midtown South market is dominated by Class B space, and average rent remains less than Midtown. Overall average asking rents in Midtown South held steady from October through November at around $32.50 a square foot. In Midtown, the average overall asking rent was 53 percent higher in November at $49.88 a square foot, the same rent as in October.
Midtown South’s enduring appeal, though, goes beyond its bargain allure – Downtown, after all, is cheaper – to what else it offers companies. It’s close to the major Midtown transit hubs of both Times Square and Grand Central as well as its own Penn Station. Plus, large chunks of vacant office space are rapidly dwindling in Midtown and Downtown. At the start of 2005, according to a third quarter market report from Cushman & Wakefield, 23 Class A spaces greater than 200,000 square feet were on the market in Midtown; by October, only 10 remained. In Downtown, absent the mostly vacant 7 World Trade Center, three blocks of Class A space greater than 200,000 square feet were available by October.
Midtown South itself has little in the way of vacant large Class A spaces – only one, in fact, by October measured more than 200,000 feet, according to Cushman & Wakefield. But it does offer more Class B space than either Downtown or Midtown, and, for companies that want a Manhattan toehold, that space may suffice. Google, for one, signed the biggest commercial lease of November in Manhattan when it took 281,000 square feet in 111 Eighth Avenue, at 16th Street.
Also, improvements to what could be called the amenities of Midtown South have been made in recent years. Grotto, in particular, cites the renovation of Madison Square Park. Once a drug haven, the park’s now dominated by smartly dressed professionals on any typical business day, waiting in line at the Shake Shack or sending emails on their laptops via wireless Internet. New, buzzed-about restaurants, too, have opened in the submarket recently, like Country on East 29th Street.
The cachet continues to spread. Credit Suisse First Boston’s 1995 lease in Eleven Madison Avenue gave Midtown South a sort of stamp of approval, says Mark Mandell, a senior director at Cushman & Wakefield. By the end of that decade, firms had fanned out into the side streets of the submarket, absorbing office space that dot-coms would technologically revamp – before exiting, of course, and leaving the space for other companies to use.
“There really is no fringe any more in terms of where companies can be,” said Mandell, who added that Midtown South’s main tenants remain creative types like ad agencies and graphic design firms. “You really find a diversity of tenants throughout the market.”
The success of Midtown South was shared in November somewhat by Midtown and Downtown in a month when the overall market seemed to be doing well. Midtown’s overall vacancy rate declined, too, from 8.7 percent in October to 8.3 percent in November. This continues a steady drop in Midtown’s vacancy rate; it stood at more than 10 percent during the same month last year.
Meanwhile, Downtown’s Class A vacancy rate, according to Colliers, dropped to 9.5 percent from 9.9 percent in October – its best showing since the 7.5 percent of September 2001. The overall average asking rent Downtown, however, dropped from $31.36 in October to $30.93 in November, something Colliers attributed to a price adjustment in the World Trade Center submarket.