With Midtown South pricing out tenants in search of smaller blocks of space, the Empire State Realty Trust has designed prebuilt office space on the 16th floor of 501 Seventh Avenue to harness the demand spilling over to other parts of the market.
Considering two types of prebuilds—office and creative—ESRT opted for creative, targeting media, tech and advertising firms. “We don’t cater to the garment industry anymore,” said Fred Posniak, senior vice president, frankly. Built for immediate occupancy, the four prebuilt spaces at 501 Seventh Avenue range in size from 2,641 square feet to 5,810 square feet.
Mr. Posniak spoke to The Commercial Observer last week about benefits and unique features offered on the 16th floor.
It is hard to believe that it was just a few years ago—specifically in 2007—when a perfect storm of positive events was taking place in the financial and real estate markets. The S&P 500 reached record highs, CMBS transactions grew to nearly $770 billion, the Blackstone Group completed its $39 billion purchase of Equity Office Properties Trust and then sold eight buildings in the Equity Office portfolio to Harry Macklowe for $7 billion, foreign investors were purchasing commercial real estate at record levels and everyone was purchasing residential condominiums. In short, happy days were here again.
“I’ll be honest with you,” Gregg Weisser said. “It caught me by surprise.”
Mr. Weisser, the senior vice president and director of commercial real estate at the Moinian Group, was discussing the dramatic rise of Midtown South as a real estate, tech, media and fashion powerhouse. But he likens the fast-paced big-city success story to a leisurely drive upstate.
Midtown South is starting to look a little like Downtown North.
In the latest sign of the evolution of Manhattan’s former no-man’s land between Midtown and Downtown into the hottest office submarket in the U.S., Cushman & Wakefield last week noted a migration of financial firms into Midtown South and a corresponding overflow of technology and media firms into the Financial District over the past 10 years.
“We’ve never seen such an intertwining of the Midtown South market and Downtown,” Andrew Peretz, executive vice president at C&W, said in an interview.
A Cushman & Wakefield report released today finds that there was less direct available office space in Manhattan in the first quarter than at any point since April of 2009.
So far this year, Class A, B and C office leasing activity totals 5,633,974 square feet, a 2.3 percent decline from the same period last year. The total vacancy rate across 1,401 buildings held steady at 9.1 percent. The average rental rate edge up 1.2 percent, to $59.69 per square foot.
“The ability to socialize and collaborate is one of the founding blocks of creating a tech community,” writes Ashkán Zandieh, director of the creative and start-up advisory division at ABS Partners Real Estate, in the latest edition of his quarter TechStarter report. Mr. Zandieh has been involved with the technology sector for seven years. He created and sold a start-up, has advised several fledgling companies and tracked the field’s real estate activity for the past year. From ABS Partner’s Union Square area office, Mr. Zandieh is well-positioned to observe and dissect the red hot Midtown South tech real estate market and, if he looks south, the growth of the Financial District as a tech and new media contender.
Mr Zandieh spoke by phone with The Commercial Observer.
The Commercial Observer: How is the tech-fueled Midtown South commercial real estate market holding up?
Mr. Zandieh: The average asking rental price per square foot increased from an estimated $38 per-square-foot in 2011 and 2012 to nearly $60 per square foot for Class B buildings in Midtown South in the first quarter of 2013. What’s pretty interesting is that we’re seeing a Class B transition–there’s a fuzzy line between Class B and Class C.
So young companies are still drawn to, and able to afford, the neighborhood?
A lot of the start-ups I’m working with now are down in Soho and expanding by 20 or 30 employees. They’re moving out of Soho and to NoMad, where they can get larger floor plates. By NoMad, I mean 23rd Street to 28th Street between Park and Seventh Avenues.
The collaborative workspace provider WeWork signed a 16-year, 120,537-square-foot lease at 222 Broadway, The Commercial Observer has learned.
David Berkey and Andrew Wiener represented the building owner L&L Holding Company in-house. Mark Lapidus of WeWork and Sean Black of Jones Lang LaSalle represented the tenant. Asking rents at 222 Broadway are in the mid-$50 per square foot range.
WeWork typically provides communal office space to tech and new media companies, making the lease another sign of Lower Manhattan’s growing appeal to that type of firm. Mr. Berkey was quick to point out that tech and media tenants are “nothing new” in the neighborhood.
“I’ve been telling whoever will listen that for two years now we’ve seen nothing but this kind of tenant here and at [L&L's] 195 Broadway,” Mr. Berkey said. “We haven’t seen financial services or law firm tenants. It’s not a new phenomenon by any stretch.”
Stat of the Week
The current difference between average Class B Midtown and Midtown South asking rents is $6.45 per square foot. If we polled brokers on which market’s asking rent was higher, nine out of 10 would probably choose Midtown.
And they would be wrong.
Early indications suggest that the period between October and December will clock in as the most active fourth quarter since 2007, just before Manhattan’s office market imploded.
And while lease flow in 2012 was a far cry from 2011, when deals by Condé Nast and Nomura Holding straddled the million-square-foot precipice, a bevy of eleventh-hour transactions by Microsoft and Kaye Scholer in the fourth quarter of 2012 helped close the gap.
The Commercial Observer reviewed fourth-quarter leasing in Midtown South with Cushman & Wakefield Director of Research Jonathan Mazur last week in an bid to gleam a snapshot of the quarter. An annotated guide, after the jump.
With rents on a high and vacancy rates inching upward, the Midtown South commercial market may have reached its healthiest point.
Both Midtown and Midtown South – perhaps the tightest market in the country –experienced an increase in vacancy rates this past year, according to numbers released Monday by Cushman and Wakefield, rising to 10.3 Read More
The popularity of Midtown South is no secret in the New York commercial market, but NoMad may be the natural landing point for firms priced out of the city’s most popular office neighborhood.
The umbrella term, “tech,” is used too often, according to Ash Zandieh, director of TechStarter—the creative division of ABS Partners.
Specifically, it’s Read More
The Year in Review
This past February, 10Gen, developer of the computer system database MongoDB, was in search of new office space, specifically in tech- and media-rich Midtown South.
The company needed a large open layout for its workers, with an option for more space to allow the firm to grow—plus an option to terminate. Unfortunately, the ultra-tight market Read More
Information database developer, 10Gen, was looking to become the latest technology firm to set up shop in Midtown South but found a more attractive option further north, taking 29,400 square feet at 229 West 43rd Street—the old New York Times Building—and was offered an asking price between $70 and $80 per square foot. The five Read More
Stat of the Week
44.6 percent—that’s the percentage of leasing transactions (by square footage) that were in the tech/advertising/media/information (TAMI) fields in Midtown South during the year to date.
The average size of those TAMI deals was rather small, at just over 26,000 square feet, and ranged from leases such as Havas, with 226,000 square feet, down to Speed Media, with just under 2,000 square feet. But we think TAMI has legs in Midtown South, due to the variety of firms taking space—it’s not just one particular segment of these creative fields.
With all the talk about Midtown South’s incredibly shrinking vacancy rate, it’s easy to conclude that deals by a swarm of new-media companies, social applications and tech startups are at the heart of the market’s heralded rebound. But a closer look at third quarter leasing activity suggests that companies with long histories, like Estée Lauder, should take equal billing. Ken McCarthy, senior economist at Cushman & Wakefield, reviewed Midtown South’s third-quarter activity and explained why the market and its five submarkets performed so well in the last quarter and in the past 12 months.