If the Midtown South office market is hot, then Soho has been scorching.
The total vacancy rate for the third quarter of 2012 was just 3.1 percent, a 1.3 percentage point drop from last year, according to a quarterly report issued earlier this month by Cushman & Wakefield. With just 47 buildings and a little more than 4 million square feet of total inventory, available space added up to slightly more than 126,000 square feet, a decline of 27.8 percent from last year, analysts told The Commercial Observer.
“There’s just a lack of inventory across the board, which will just keep pushing rents north,” said Greg Taubin, executive managing director at Studley. He added that there is “continued demand from tech-related tenants seeking the look and feel of a collaborative environment.”
Total weighted average rental rates in the third quarter for the neighborhood were $49.03 per square foot, up 4.3 percent from last year, according to the C&W report.
Some potential Soho tenants are seeing asking rents close to $60 per square foot, said Mr. Taubin, who added that many tech firms and other growing businesses in the area are paying slight premiums to get lease flexibility.
“Most of the buildings, even out there, have very little space,” said Taubin, who added that most of the properties being marketed are between 2,000 and 3,000 square feet. Mr. Taubin said that a recent client competed with two other tenants when trying to get future expansion rights in the building while renewing its lease.
But even as space in the area decreases, the area’s tech firms are starting to look out for each other. At 568 Broadway, Fueled, a digital application developer, is using some of its 12,500 square feet (which it subleases from Foursquare) to house 15 other startup technology companies, according to published reports in August.
Retailers are also flocking to the trendy neighborhood: In August, quirky Norwegian clothing purveyor Moods of Norway inked a 4,000-square-foot lease at 75 Greene Street, and interior decorator Sygrove Associates Design Group signed a 1,228-square-foot lease at 594 Broadway, brokers told The Commercial Observer.
However, in a strange twist, some firms are now moving out of Soho. Danish design firm Hello Monday decided to head to Tribeca, while Casserole Labs, a tech firm, is heading toward Dumbo, following a deal announced just last week.
Rents could increase even more, and some tenants may be faced with escalating fixed percentage rate increases, said Mr. Taubin, who added that many buildings in the area don’t include perks like cleaning services that tenants enjoy in Midtown.
“The gap between the rents seen in this area and in Midtown are less than $8 in a lot of buildings,” said Mr. Taubin. “There’s no longer a gap.”