Tenants are eschewing the traditional Midtown business corridors and heading out West and down South.
A report by Newmark Grubb Knight Frank (NGKF) found that companies are increasingly seeking out other corridors instead of Midtown, leaving a glut of supply in the once-hot area.
In the first quarter of 2016, the Midtown availability rate is nearly four percentage points higher than it was in 2007.
NGKF expects that divide to keep growing until at least 2020, as inventory in the city expands and more office blocks of space become available.
In 2007, the brokerage firm began tracking 50 available large block of institutional quality space in Midtown (100,000 plus square feet) that were either on the market for lease or about to become vacant within the next several years. Now, NGKF is tracking more than 80 blocks.
Companies like Time Warner, Conde Nast, L’Oreal, Twitter, and KKR have all headed for greener pastures in Lower Manhattan and the Far West Side. Creative firms R/GA and VaynerMedia recently made the move from Midtown to the Hudson Yards.
“I don’t think in the short term this will have an effect on pricing,” said Jonathan Mazur, managing director of research at NGKF. “It goes to the type of product that has these availabilities — they’re not ordinary buildings, they’re special buildings.”
Those special buildings are trophy, class A Midtown properties, which are not inexpensive.
Of the 25 million square feet that will be developed on the Far West side, 25 to 30 percent has been pre-leased so far, leaving a significant amount left to be absorbed — and only one committed tenant has come from Downtown.
Downtown asking rents are 27.7 percent below the Midtown average, a big draw for tenants looking to spend less.
In Midtown South, the much-discussed TAMI tenants, a workforce that has seen employment rise 5.4 percent in the last year, have focused on buildings with open floor plans, in contrast to Midtown, which has many structured private offices. NGKF also found that TAMI tenants put a premium on amenity spaces, dedicating the highest percentage of their spaces to their amenities, at more than 10 percent. Large offices and file libraries are being replaced by co-operative break-out rooms and coffee bars, and fitness centers, training rooms, food service areas and meeting spaces are being considered to cater to collaborative workforces.
As a result of the migration, many landlords in Midtown are adjusting their assets to attract rapidly expanding at 450 West 33rd Street, Brookfield Properties is spending $200 million redeveloping the 1.8 million-square-foot building to be re-named 5 Manhattan West and integrated into the Manhattan West Development.
TAMI tenants from an increasingly tight Midtown South market. Many are adopting modern amenities aimed at millennials, which form the core of the industry’s employment base.
According to the report, existing TAMI tenants have expanded 71 percent more in 2015 than they did in 2014.