By Dan Orlando
The “Avenue of the Americas” is sliding towards the “Avenue of Availability,” according to a study by Savills Studley.
The research suggests that the commercial rental market along the prime Midtown Corridor may soon begin to tip in the tenants’ favor despite a current lack of competitive pricing and available space.
“Sixth Avenue rents seem to have some room to decline relative to rents in other parts of Midtown,” said executive managing director of Savills Studley, Greg Taubin. “In addition, the supply of space that has already been committed to being vacated in the next few years could further impact the Corridor, but time will tell.”
Currently, the area’s meager sublet reservoir places owners in the position of strength.
“Asking rent has been boosted by the change in composition of inventory,” Savills Studley’s chief economist, Heidi Learner told Real Estate Weekly.
Sublet space along Sixth Avenue currently makes up only 19 percent of the available supply as compared to the 45 percent it did in the summer of 2011.
The 36 percent drop leaves Sixth Avenue on the sidelines while other divisions of Midtown are still able to cater to large commercial tenants who desire the discounted rates of sublets in the neighborhood of 100,000 s/f.
Sixth Avenue’s Class A selection does not provide relief and is described in the study as already “somewhat stale.” Spaces from this category have been waiting on the market for nearly a year and a half.
The true turbulence lies in the realization that many major entities that currently inhabit choice space in Midtown are far from permanent residents.
Prime tenants, such as HBO, Conde Nast, Time Inc., and Time Warner are in the midst of heading towards trendier pastures such as Hudson Yards and One World Trade Center over the next few years.
“Already landlords are aware that they’re going to compete with newer space,” said Learner. “The need to compete with the newer product that’s on the market is something that they’re aware of.”
Learner suggested that the perhaps the Corridor is not currently designed to meet the changing needs of New York’s modern commercial tenant. While space along Sixth Ave and other Midtown subsections may still be ideal for large financial clients, creative entities and the rising tech scene have worthy suitors elsewhere.
“I think one advantage, and it can be a disadvantage also, is a lot of the buildings along Sixth Avenue have very, very large floor plans,” said Learner, indicating that a growing division of New York’s commercial entities do not need to invest in such space – yet.
Silicon Alley, the trendy title bestowed upon New York’s rapidly expanding tech sector, produced its first billionaire last summer. Shutterstock, a digital stock photo provider, notched a $76.5 million IPO in 2012 and helped its founder, Jon Oringer become a billionaire by July of 2013.
It hit those lofty milestones over the course of several years within the confines of four boxed in floors in the Financial Distrtict but eventually needed a more spacious environment in which to operate.
Shutterstock, recently moved about 300 employees to an 85,000 s/f home in the Empire State Building and music streamer, Spotify, completed an expansion only months before.
The Stockholm based Spotify grew its New York base of operations by about 50,000 s/ft on Sixth Avenue in the Flatiron. The company originally operated out of about 70,000 s/ft of space.
The near future is likely to produce more tech enterprises whose roots have outgrown the smaller SoHo pots in which they were originally planted as Silicon Valley continues to attract tech talent to downtown’s loft spaces.
In the interim, adaptation may be necessary for Midtown owners looking to hold on to the tenants that are already large enough to fill their soon to be empty spaces.
Even the stalwarts seem to have read the writing on the wall, choosing to re-engineer the space of already prime real estate in order to combat the pending conclusion of notable leases.
The Rockefeller Group and RXR Realty are opting to renovate their existing properties to attract the types of clients that are beginning to make use of other options in Southern and Western Manhattan.
In July, Rockefeller announced “significant enhancements” to 1221 Avenue of the Americas. The Midtown icon plans to upgrade the building’s entrances, elevators, lobby, and plazas.
RXR is refabricating the 630,000 s/ft. of 75 Rockefeller Plaza, a building on which they have a 99-year lease.
“Over time property needs to be continually improved,” commented Learned on the planned changes. “There’s an extent to what you can do to an existing building.”
According to Learner, retooled spaces will likely only fight half the battle.
“Whether creative class tenants find the space attractive will be driven in large part by their price sensitivity,” said Learner.