Supersize Chelsea!: In New York’s Main Art District, It’s Go Big or Go Home

Or to the Lower East Side

Kelly. (Ben Polsky)

But for each new mega-gallery that pops up in Chelsea, a dozen others seem to disappear or move to locales more congenial to their activities. At the high end, there’s Sean Kelly, who is trading in his 6,500-square-foot gallery on West 29th Street, already on the far northern reaches of the neighborhood, for a space even farther north, on 36th Street, formerly home to the nonprofit Exit Art. It will cost him about $50 per square foot, compared to the $100 to $150 price-tags he was finding in central Chelsea. “It seemed like an absolute no-brainer,” he said.

To fill the new Toshiko Mori-designed space, which opens Oct. 27 with an Antony Gormley exhibition, Mr. Kelly has gradually added a half-dozen artists to his roster, including Kehinde Wiley and Terence Koh. “Artists are looking for bigger and better spaces,” he said. “At the end of the day, that’s what they love.”

But perhaps the sweetest part of the deal? Mr. Kelly signed an 18-year lease. “We would never have gotten that in Chelsea,” he said. “This is a lease that will basically see me through my professional career in the city.”

As real-estate adviser Mr. Bateman put it, “A lot of the landlords are hedging on the future with shorter-term leases because they envision the High Line as being the next West Broadway or Madison Avenue.”

The new Hauser & Wirth, for instance, can’t undergo any major renovations because its 10-year lease includes a clause allowing the owner to terminate the agreement in as few as six years if the building finds a buyer. As a result, Mr. Payot said he’s more concerned with just “turning the space into a functional gallery. We’re treating it like a big project space, not a glamorous white cube.”

Of course, it’s the small galleries, particularly those on upper floors, that have been most trampled by the rising rents. Prices tend to be somewhat uneven among Chelsea’s large multifloor buildings, but a few key sites have raised rents upward of 30 percent in recent years. Around two-thirds of the upper-floor galleries have disappeared or fled to cheaper pastures since 2007, according to Rice & Associates.

And apart from early colonizers like Matthew Marks and Paula Cooper (and Larry Gagosian, who reportedly paid just $5.75 million for his 24th Street space when he bought it from the Gambino family in 1999—a steal given how values have since escalated in the neighborhood) very few dealers own property in Chelsea. Mounting office and residential competition makes space even more scarce. Between now and the end of the year, developers are expected to add about 600 new luxury rental units to a 12-block radius in Chelsea.

“Real estate was the biggest factor,” said Michael Foley of his eponymous gallery’s recent move from Chelsea to 97 Delancey Street in the Lower East Side, where he pays about the same price per square foot for a ground-floor space as he did for the second floor on 28th Street. In the cheaper corners of the Lower East Side, around Ludlow and Orchard, galleries can get ground-floor property at about $30 to $50 per square foot.

“As the bigger galleries take up more space, it makes us find space on the outskirts of Chelsea, the upper floors, or on streets that are not that populated by galleries,” Mr. Foley said.

Shifting demographics play a part as well. Chelsea’s Horton Gallery is adding a third space next month in the Lower East Side because, as owner Sean Horton put it in an email, “Increasingly the lack of smaller galleries in Chelsea makes it a less interesting place to be. It’s a great destination for museum-quality exhibitions, but there’s less sense of discovery there now.”

But while there are many similarities between late-stage Soho and Chelsea, there’s still reason to doubt that real estate will win the battle. “There’s a lot of hype, but I wonder how much of a real contribution the High Line is making,” Mr. Bateman said. “Sure, there are two to three million new visitors, but do they get off? Do they really patronize the galleries? It closes before dinner, so the restaurants don’t benefit.”

His solution is for the city to offer tax credits to landlords housing small galleries, like the abatements it gives to the film industry. But, for now, the more humble dealers are rapidly losing faith in Chelsea. The supersizing galleries, on the other hand, might be onto something—in an uncertain market, perhaps the most valuable product of all is confidence.

Supersize Chelsea!: In New York’s Main Art District, It’s Go Big or Go Home