The Next Hot Submarket?
Human nature keeps us searching for the Next Big Thing. And when it comes to New York real estate, Lower Manhattan certainly comes to mind based on the dramatic changes underway. But there is another area farther north that has as much going on and then some – Penn Station. Of course the primary reason is the greater Hudson Yards development which is included in this Newmark Grubb Knight Frank submarket. But there are other items afoot besides that massive project.
First, let’s have a quick tutorial of this substantial Midtown South submarket. As it stands today, there are 129 buildings with 32.1 million square feet of inventory. Just over 34 percent of the inventory is considered Class A, though it consists of only eight buildings (generally the more massive ones clustered around Penn Station proper). The current availability rate is 12.7 percent. This is up from 9.8 percent in the first quarter largely due to two major additions—the entire 649,000 square feet at 330 West 34th Street as well as a 114,000-square-foot sublease at 1 Penn Plaza. Despite that increased vacancy rate, recent leasing has been robust with renewals such as Macy’s and new deals such as Shutterstock.
But it’s the future that has everyone keyed up over the Penn Station submarket. Following are a few examples:
- The greater Hudson Yards project, with new zoning in place, would allow for 26 million square feet of office space, 20,000 housing units (25 percent of those affordable), 2 million square feet of retail and 3 million square feet of hotels. WOW!
- Several developments are currently in the construction or planning phase—the first one to rise looks to be 501 West 30th Street (Related Companies’ South Tower with Coach, L’Oreal and SAP as anchors).
- The extension of the No. 7 subway line is due to open in 2Q 2014 (taking it from Times Square down to 34th Street and 11th Avenue).
- The Moynihan Station project will extend the current Penn Station with new entrances and corridor expansions; eventually new retail and office may be included in the mix.
- A new Madison Square Garden remains a long-term possibility, along with other office projects in the vicinity, including a brand new and way improved Penn Station.
So that’s the big picture stuff. For the near term, though, there has been a bit of a shake-up amongst the tenant base. The area remains the heart of the garment industry. More and more, however, there are a variety of tech/media/telecom (TMT) firms migrating north from the more expensive pockets of Midtown South. (Compare the average asking rent of Penn Station at $47.81/sf with Flatiron/Union Square at $65.73/sf, for instance.) There is generally the same type of building stock across Midtown South but Penn Station is still missing that “cool” factor. Spurred by new projects opening over the next several years, expect that image to change—and increasing rents to follow.