Bargains go beyond $9.99 in Garment District

There are bargains to be had in the Garment District — and not just for $9.99 sweaters. Seventh and Eighth avenues in the 20s and 30s are a retail renters’ market, with rents among the lowest in Manhattan today, sources said. In some cases, they’re a steep discount compared to prices in adjacent neighborhoods such as Chelsea, where rents are about 30 percent higher.

While the area has long been one of the most affordable commercial neighborhoods in Manhattan, the deals there have sweetened even more lately, as rents across the city have nosedived.

At the same time, more than a dozen retail locations in the area, particularly along Seventh Avenue in the 20s, are either in the process of changing hands or have recently come on the market.

The new tenants are expected to keep the somewhat gritty flavor of the area, which is made up largely of food merchants and service stores that cater to office workers, garment-district workers and a large residential population that lives in Penn South, the middle-income housing complex on the south end of the strip.

But as new hotels sprout to the north, the area might see higher-end retail and higher rents down the road, especially if zoning restrictions are lifted in what’s officially designated the Garment District, sources said.

For now, however, “there are good deals when compared to other prime markets,” said Eric Gelber, senior vice president of CB Richard Ellis, who is marketing the two corner spots of 275 Seventh Avenue.

Asking rents for the Verizon and leather store at one end of the building, which are up for lease, and the Organic Market at the other end of the building, are $165 a square foot each.

Gelber said food tenants and service merchants seem most interested in the spaces. And the asking rents there represent a substantial drop from what landlords wanted for retail space just a short time ago.

“In the same area, the asking rents were around $225 a square foot before the market changed,” said Robin Abrams, executive vice president of the Lansco Corp.

While Seventh Avenue has a little more cachet than Eighth because of the Fashion Institute of Technology and chains such as Whole Foods and American Apparel, the retail in the neighborhood is largely defined by the fur industry, Korean wholesalers, delis, Penn Station and “manufacturing types of labor,” Abrams said.

“These are not high-profile neighborhoods. They’re not in vogue, trendy. They’re mainstream, local areas with local merchants,” she said.

She said that much of the retail caters to tenants from the nearby middle-income housing, “and those users can’t pay super-aggressive rents.”

According to listings obtained by The Real Deal, the eight retail spots being mar keted on Seventh Avenue between 25th and 37th streets, which provide a good sample of the area, have an average asking rent of $140 a square foot.

South of 23rd Street in neighboring Chelsea, rents are another story. For example, the asking rent for a vacant space at 220 Eighth Avenue, between 21st and 22nd streets, is $180 a square foot, Abrams said.

Some established tenants in the Garment District are looking to capitalize on the slow market with rent reductions, said Grant Greenspan, a principal with the Kaufman Organization.

The company brokered a new lease at 202 West 36th Street on the corner of Seventh Avenue for the Irish pub Pig ‘n Whistle, which is expected to open at the currently vacant site by the end of the year. The pub has taken on the corner spot (which is technically a side street location), with an asking rent of $55 a square foot, 30 percent off its peak in 2007, Greenspan said.

These days, landlords in the area are also throwing in concessions in the form of a free month’s rent, new storefronts or air-conditioning installation, Greenspan said.

Although the northern tip of the area, sandwiched between Penn Station and just below Times Square, gets major foot traffic, it has never been a retail destination.

With the exception of Macy’s, national chains have shied away from the avenues, as have small independent boutiques, said Dan Pisark, vice president of retail services for the 34th Street Partnership, a coalition of property owners, tenants and city officials that focus on the area’s revitalization.

The proof is in the numbers. Garment District rents are dwarfed by rents in other neighborhoods.

In the second quarter of 2009, the median asking rent for ground-floor retail space in Soho was $480 a square foot, according to the Real Estate Board of New York’s spring retail report.

In the Flatiron District, rents averaged $285 a square foot; and in the Meatpacking District rents were at $417. In areas closer to the Garment District, such as Herald Square proper, rents averaged $508 a square foot.

According to the Fashion Center Business Improvement District, asking rents on Seventh and Eighth avenues on the north end of the stretch between 34th and 41st streets average $180 a square foot. Industry reports don’t even track the more southern stretch of Seventh and Eighth avenues in the 20s and 30s because the area is not considered a retail destination.

For a while, many expected the area to undergo a retail renaissance.

“When the New York Times building opened, that was going to send shockwaves through the neighborhood,” Pisark said, noting that the impact was also anticipated south of the building in the 30s. “But there have been no shockwaves.”

In part, that’s because the side streets are zoned for garment-district manufacturing.

Meanwhile, tenants such as law firms, architects and graphic designers are largely shut out of office space in the 30s “which affects your traffic and the buying power,” said Jerry Scupp, deputy executive director of the Fashion Center Business Improvement District.

As a result, he said, “this area is undervalued.”

The Fashion Center BID is looking to change that. It’s on a mission to get the zoning restrictions lifted to attract new tenants while preserving elements of the garment industry. Last month, the New York Times reported that the Bloomberg administration is considering zoning changes that could pave the way for more manufacturing-type buildings to be converted to office space.

But in the meantime, the new crop of hotels in the area, such as the Wingate, as well as the revamped New Yorker Hotel, are altering the complexion of the foot traffic at the strip’s north end, Scupp said. He noted that some old-time delis are being replaced by gourmet delis, and retailers such as Macaron Cafe, the French patisserie at 161 West 36th Street, are turning up in the area.

Still, it’s the rezoning of the Garment District “that will make a dramatic difference,” Scupp said.