By: Erik Ipsen | Crain's New York Business
Midtown is losing tenants to other areas of Manhattan. Photo: Buck Ennis
The two great cornerstones of the Manhattan real estate market are fading. Midtown, the city's largest office market, is losing tenants to midtown south and downtown, according to data from Cushman & Wakefield released Wednesday at a press conference.
And financial tenants, long the dominant space taker in the city's office market, have ceded that crown to the so-called TAMI sector—technology, advertising, media and information technology companies.
"The epicenter of Manhattan is moving west, south and downtown," said Bruce Mosler, Cushman's chairman of global brokerage, noting that TAMI tenants are driving the shift in demand. As a sign of that move Mr. Mosler noted that rents are rising faster these days outside of midtown as well.
Others noted that even some long-term midtown stalwarts are looking elsewhere for office space these days.
"It used to be that if you were on Park Avenue you wanted to stay there, but that is not the necessarily the case anymore," said Gus Field, a Cushman broker. "Now they will look at midtown south, downtown or even Brooklyn."
According to Cushman, TAMI tenants are now the top drivers of leasing activity.
"This is the first time that the TAMI sector has exceeded the financial sector in terms of the number of tenants in the market and their demand for space," said Mr. Mosler, commenting on data for the first half of 2014. "The (space) requirements of the TAMI sector have eclipsed all other sectors."
While a number of Cushman officials stressed that the long-reigning midtown market will continue to prosper, they also noted that the TAMI companies—and their employees who live in Brooklyn and lower Manhattan—now favor points south and west, including the forest of new towers rising in and around Hudson Yards west of Penn Station.
Nowhere is that reversal of fortune sharper than in downtown. Long the city's laggard market, the old financial district now has a lower vacancy rate than midtown, 10% versus midtown's 11%. It also has some prestigious, former midtown tenants, including Condé Nast and Time Inc. Meanwhile, the far smaller midtown south office market has a vacancy rate of 8.2%—the lowest of any market in the entire nation for the several years running.
Despite the shifts, Cushman officials noted that the market for midtown office buildings has hit new highs in the first half of the year with the average price per square foot for Class A properties rising to $1,300, up from the prerecession peak of $948 in 2008. There pricing is being driven by heavy buying from overseas. Foreign buyers were also credited with a resurgence all across Manhattan of mega-deals, those with 10-digit price tags.
"When this capital lands here they don't want to invest $100 million or $200 million; they want to invest billions," said Janice Stanton, a senior managing director in Cushman's capital markets division. She also noted that nearly half of all cross-border deals involve buyers in the Asia Pacific region.