News
SORRY, DUDE, MIDTOWN ISN'T COOL
September 24, 2012
| If you invited Midtown to a party, it'd show up wearing a Members Only jacket. “Cool is dictated by demographics, and Midtown just isn’t cool anymore,” Trinity Real Estate president Jason Pizer told a crowd of 500 during Thursday’s fourth annual Bisnow New York State of the Market event at the Hilton, noting that the tenants making space decisions are the ones saying “dude" and "totally." |
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| Midtown South is the hottest office market in the nation, according to CBRE vice chairman Michael Laginestra, with spikes in activity and prices, as well as a transformation to a more creative tenant base. Now the submarket has much lower availability and it’s harder to find quality blocks of space. |
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| But don’t lose hope, Midtown—you may still have some cachet. (It's not like you haven't seen a hipster in that Members Only jacket.) “Midtown may not be as cool, but there are tenants who still want to be in impressive buildings,” says Lee & Associates NYC prez Jim Wacht (wearing cool cowboy boots), whose own firm resides at 58th and Madison. Avison Young principal Greg Kraut notes that some of the larger tech firms are now looking north of 34th Street in neighborhoods like Times Square South and Grand Central, which he says may just be the next frontier for these tenants. But there are still “cracks in the armor” on Park, Fifth, and Madison for buildings with bad light and views, he adds. |
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| Other areas are also piquing interest. Greg says that south of Canal Street is changing, and rental rates are still much cheaper—a good bet for large companies or those in the service, non-profit, or tech industries. Brooklyn will be a viable CBD for tech and new media firms, says Jim. And Michael gave his vote of confidence for the rapidly changing Downtown submarket, which is attracting more residents and amenities. “Tenants want to be where you can do everything.” |
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| Overall, the leasing market is seeing fewer showings and increased rental support, concessions, TIs, free rent, and incentives, Jim told the crowd. But it’s not necessarily a bad year, he says—this year’s leasing value is on par with the 30-year annual average and the market in equilibrium. But it’s difficult after having such an unbelievable 2011, he says, likening it to a slowing treadmill. “Psychologically, we feel like we’re going backwards.” Michael expressed concern over the new WTC space coming to market at a time when the financial services sector is suffering, leaving huge blocks of space. Sixth Avenue, he says, "is under siege... If you’re a tenant looking, you might get some deals.” |
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| The deals closing this year are mostly renewals. (Sometimes it's easier to stay than to try and clean out the fridge.) Jason, whose two last deals were renewals, says tenant space is changing: There’s not as much benching, but more of a hybrid model of corner offices and open areas with a lower person-to-SF ratio. Capital is becoming an important component in deals, Michael adds—these tenants are rebuilding to save money, slash space, and attract a younger workforce. When CBRE moved into new space at 200 Park, he says he traded in his sheetrock-surrounded office for a much smaller office with glass walls. “I now have four times the conversations—I love it.” |
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| Our panelists with veteran Bisnow moderator Jackie Weiss, a partner at Arent Fox. Greg says his last 10 deals were renewals, as people don’t want to deal with the headache of moving—but some have only been for terms of three to five years. “Change is scary for everyone,” Jim agrees. So expect to see more reworking and increased capital from owners who are open to the reality of losing a tenant in this market. Check back tomorrow to hear from our expert panel of New York City landlords. |
