Midtown south, that region of heavily commercial Manhattan from roughly Houston Street to 42nd Street, may be the crystal ball for New York’s financial health. It has a lot of the island’s cheapest office space; and, yet, that same space is emptying slowly as companies trickle out sans successors.
Midtown south’s scruffier buildings—think old Silicon Alley hangouts hastily rewired 15 years ago, groaning under the weights of sporadic upkeep and old infrastructure—have considerably lower rents than midtown’s gleaming towers: In September, the average midtown south asking rent was $52.86 a square foot, according to CB Richard Ellis; in midtown, it was $84.74.
Even with the cheaper space, midtown south has been steadily losing its office tenants. midtown south’s vacancy rate increased from 5.6 percent in September 2007 to 7.1 percent in September 2008, more than the annual rate increase for all of Manhattan. At the same time, over 10 percent of midtown south’s office space was available for lease by October, according to CBRE—greater than the available amounts in midtown and downtown.
As they lose tenants, midtown south landlords are having trouble signing new ones, particularly ones looking to plant large roots. Midtown south has not recorded a lease of over 100,000 square feet in all of 2008, according to Cushman & Wakefield.
To be fair, prospective tenants do not typically turn to midtown south for such large blocks of space. And the region isn’t as desirable an area for marquee companies as midtown or downtown. Class B office space dominates midtown south, and it’s where smaller companies go for a Manhattan toehold.
But that’s just it: It’s often the office region of last resort, an address born of necessity not of choice. Companies are splitting—and others aren’t coming in to replace them. That’s not good news for New York’s economy.