NORTHEAST SNAPSHOT, APRIL 2005

NEW YORK CITY OFFICE MARKET

The New York City office sector recently has seen a trend towards Class B and C loft buildings. The rental rates for these increasingly popular B and C properties are ranging from $15 per square foot to $40 per square foot. Vacancy rates are currently 11 percent for B and C properties, and for Class A properties vacancy is at 13 percent. In effect, says David Levy, principal with New York City-based real estate firm Adams & Company, properties that have been overlooked for a long time are becoming available and attractive to traditional office tenants. “As the city’s business improvement districts have cleaned up side streets, and as shipping tenants have moved to the outer boroughs of New Jersey, these Class B and C properties are rapidly gaining popularity in corporate cultures,” says Levy. “In addition, they have become even more desirable under the radar as hip offices and lofts.”

As the market for Class B and C buildings is becoming more popular, Adams & Company capitalized on a new trend in office space with increased involvement in the specialty building market. According to Levy, a specialty building is any building that dedicates itself to a particular industry. Generally, tenants appreciate these types of spaces; when representatives from a particular industry are consolidated into one building, each individual company’s business sees improvement, he says. “Customers and wholesale buyers from out of town appreciate being able to conduct business in one location.” Demand for this type of space is growing, and even during uncertain market times, rents in specialty buildings are consistently increasing.

Many popular tenants are signing large-scale leases in specialty buildings, including Winlit Group, Herman Kay Company and Henry Donegar Associates. These companies all have leased space at the Outerwear Center, located at 463 Seventh Ave., which is 99 percent occupied. However, it is not only small businesses that are interested in leasing space in specialty buildings. Perry Ellis recently signed a 10-year lease for 11,500 square feet at 42 W. 39th St. in the Menswear Center, where Tommy Hilfiger also occupies space.

Looking toward the future, Levy believes that the Transit Triangle, which is the area that forms a triangle connecting Grand Central Station to the Port Authority to Penn Station and back to Grand Central, has the most potential for growth in the entire city. “Basically, this area encompasses 32nd Street to 42nd Street from Park Avenue to Eighth Avenue. The development opportunities include a combination of garment center showroom buildings, restored lofts and office buildings. As workers are being required to put in longer hours, office developments retaining proximity to major transportation hubs will become more desirable than ever.”

Though the focus is often solely on the prominent office towers defining New York City’s skyline, Class B and C properties are stealing the show more often as vacancies drop and the need for space arises. With viable rental rates and prime location, these properties are poised to experience increased interest from the city’s traditional office tenants.

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