Just blocks from buttoned up Midtown lies the somewhat bland-sounding market of Midtown South. Contrary to its name, it is arguably the most happening of commercial markets in the entire United States at the moment.
This live-work-play swath contains the neighborhoods of Chelsea, Flatiron, SoHo/NoHo/Village, Hudson Square and TriBeCa with a wide variety of office product. An entire column could be devoted to each of these areas, but for sake of brevity I will lump them together (let’s not even get into the retail, gallery and residential worlds).
The one unifier on the office side is that most buildings are older (average age is 97 years versus
Midtown’s 76 years), no matter their size, with little new product. Many of the buildings have
been upgraded rather substantially with open floor plans and wired to the hilt. And though
tech/media tenants get most of the publicity, the area also contains a fair number of fashion,
financial, non-profit and education tenants among the myriad of others looking for that 24/7 mix.
At 9.0 percent, Midtown South has the second lowest overall vacancy rate in the nation (of the
major markets), after Honolulu at 6.7 percent [Editor’s note: Because the methodology differs, Cushman & Wakefield, among others, figures Midtown South's vacancy rate at 5.9 percent] The figure is also well below the 20-year quarterly average of 11.4 percent. The current overall average asking rent of $43.69 per square foot is 43.6 percent above the 20-year quarterly average of $30.43 per square foot; it is approaching the quarterly record high of $49.35 per square foot which occurred in June 2008. Compared
with other major U.S. markets, it ranks as the third highest average asking rent after Midtown and Washington, D.C.
There is minimal new office construction underway or proposed – 51 Astor Place (430,000 square feet), 510 West 22nd Street (175,000 square feet), 860 Washington Street (100,000 square feet), 837 Washington Street (81,000 square feet) and 75 Ninth Avenue (undetermined size) – all of which will certainly push asking and effective rents much higher.
Google is most certainly considered the “mother goose” of the neighborhood – going so far as to push her roosting children out of 111 Eighth Avenue and into the wilds of Midtown South in search of a new home. In turn, this has created further space demand.
The big question of course is will the tech/media boom continue and even if it does, will these tenants remain focused on the increasingly tight and increasingly pricey Midtown South market?
Certainly the current expansion of the industry is more “real” this go-around with established companies marketing real products (unlike the late 1990s when there were a number of companies with plenty of venture capital but no real product). And the jobs provided by the current firms are less marketing and more programming and engineering than at that time (translation: higher paying positions).
No doubt some companies will fade while others will boom and sell themselves to even bigger firms. There will be ups and downs but generally we feel comfortable projecting a continued tightening market.
Companies needing bigger blocks of space or product at a lower price point may focus on Lower Manhattan or even Brooklyn and Long Island City.