Once-overlooked area thrives as trendier alternative; High Line, Shake Shack help
Two years ago, Rockrose Development shelved plans to turn 300 Park Ave. South into a hotel and instead poured $5 million into a renovation designed to lure some of the creative companies streaming into the area and into midtown south in general.
The move paid off. In just the past six months, Leo Burnett and the Whitney Museum of American Art took two floors each at the 195,000-square-foot, century-old building at the corner of East 22nd Street. Meanwhile, agency Wilhelmina Models and book publisher Rizzoli International Publications renewed their leases there.
“When I first started working around here, it was a dead zone,” said MacDara King, who began his job at the Foreign Policy Association at 470 Park Ave. South a decade ago. “Now there’s a good bar scene, and the restaurants are getting better.”
After decades of being completely overshadowed by New York’s two biggest markets—midtown and downtown—midtown south is coming to the fore.
The market, which spans a number of neighborhoods and runs from 41st street down to Canal Street and from river to river, has established itself as something of the market of the moment. Its mix of smaller floor plates, lower rents, a more human scale and a top-notch list of trendy attractions have combined to make it a favorite among more creative types—and employers who want to attract and retain them.
Among them are advertising agency Grey Global Group, which set up shop at 200 Fifth Ave. a year ago, and Google, which leased more than 500,000 square feet at 111 Eighth Ave. starting in 2006, and which late last year agreed to purchase the entire 3 million-square-foot building for $1.77 billion.
The market’s success is evident in the numbers, which show it held up better during the recession than its peers and has bounced back faster in the recovery.
As of the third quarter, average rents in Class A buildings in midtown south were up 18.7% from year-earlier levels—far outpacing midtown’s 2.4% rise, not to mention the 5.6% dip posted downtown, according to data from CresaPartners. Similarly, rents for Class B buildings were up nearly 1% in midtown south, while they fell in both midtown and downtown. Crucially, average rents in midtown south are 31% less than midtown’s, though they do stand 13.3% above downtown’s.
Midtown south also outshines its rivals in terms of availability rates. For the Class B space that predominates in the area, availability stood at 10.2%, compared with 13.7% in midtown and 14.6% downtown in the third quarter, according to Cresa.
The downside of midtown south’s success is that it is increasingly difficult for growing companies to find large chunks of real estate there. In addition, midtown south’s longstanding reputation as a market filled with older buildings charging lower rents is under threat from the foundering downtown market, where average rents are cheaper and getting more so by the day.
18.7% Rise in average rents in Class A buildings in midtown south as of third quarter
But downtown—and midtown—don’t have midtown south’s panache.
“The individual on the street in midtown south is somebody who has an open collar,” said Jonathan Adelsberg, co-chair of the commercial leasing practice at Herrick Feinstein, located at Park Avenue South and East 32nd Street. “It’s somebody who has an iPhone instead of a BlackBerry.”
That looser style is attractive to younger, more creative companies and their employees, as are all the trendy hotels, restaurants and bars flourishing in commercial Manhattan’s midsection. The Gansevoort Park Avenue NYC hotel opened its doors in the summer. The Hurricane Club, a Polynesian restaurant and tiki bar, opened in September at Park Avenue South and East 26th Street. There’s also Mario Batali’s wildly popular 5-month-old Eataly, just down the street from Madison Square Park and the city’s original Shake Shack.
Parks and cultural attractions are sprouting as well. The Whitney is planning to build a museum in the meatpacking district, across from the hugely popular 18-month-old High Line, which will open its second leg in the spring.
“All these amenities are very appealing to employees,” said Daniel Horowitz, executive managing director at Studley. “Historically, tenants moved to midtown south for lower rents. but it has been in constant evolution.”