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New York - (Bloomberg) - Office demand in New York is shifting from the glossy skyscrapers of Midtown preferred by banks to the quirkier mix of neighborhoods to its south. Technology, media and information firms that gravitate to the area took more Manhattan office space than financial companies this year for the first time, brokerage Cushman & Wakefield Inc. said.
About 44 percent of the 959,000 square feet (89,000 square meters) they leased through May 15 was in Midtown South, as the market roughly between 30th and Canal streets is known. Asking rents for Midtown South’s most desired offices averaged $66.74 a square foot on April 30, up 16 percent from the end of 2011 and just $5.22 short of the average for top-quality space in Midtown, where so-called Class A rents rose only 1 percent, according to Cushman. Rates are surging in part because companies are clamoring for offices in an area that has less than a tenth of the Class A space found in Midtown.
“There’s always been a delta between the economics of Midtown and Midtown South,” said David Falk, New York tri-state region president of commercial brokerage Newmark Knight Frank. “What’s happened is very quickly, before our eyes, Midtown South rents are rising higher than for many buildings in Midtown. Buildings where maybe you’d pay $50 a foot are now getting low $60s.”
The rent gap is closing as New York’s financial-services industry “is in a total shakeup,” said Ruth Colp-Haber, founding partner of Wharton Property Advisors Inc., a brokerage that represents Manhattan office tenants.
New York is the fastest-growing U.S. technology hub, according to a study released this month by the Center for an Urban Future. While information technology employment in the city grew by 29 percent since 2007, securities industries jobs fell 5.9 percent, the New York-based public-policy group said.
The Midtown South market ranges from historically affluent Gramercy Park to the once-foreboding warehouse and factory areas along the Hudson. The transformation of the High Line from an abandoned rail trestle into an elevated park helped make the Meatpacking District and West Chelsea two of the city’s most desirable neighborhoods for companies that are outside of Manhattan’s traditional financial base.
Buildings with 'Character'
“They don’t want Midtown glass-curtain-wall buildings,” Mary Ann Tighe, New York regional chief executive officer at CBRE, said in an interview. “They want fully renovated former industrial buildings, or buildings that have character.”
Across the park, developer Robert Lapidus said he’s close to a deal for about $90 a square foot for the final floor available at 200 Fifth Ave., a 14-story property at the corner of East 23rd Street, where the gourmet food market Eataly draws crowds of shoppers. He declined to name the tenant.
Meanwhile 51 Astor Place, the Fumihako Maki- designed office project Ed Minskoff is building in the East Village is asking between $88 and $115 a foot . Those rates approach the highest rents for top-quality space in midtown Manhattan, the most expensive U.S. office market, as a booming technology market fuels demand for trendier areas.
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