When I first started in the commercial real estate business, there was a very simple maxim: ask the CEO where he or she lived, and find a property that offered a convenient commute. However, my experience in the business has shown it’s rarely that simple. When companies look for space, they have a lot of conflicting criteria that they use in order to evaluate different NYC locations. For example:
- How is the subway access?
- Are there good restaurants and stores nearby?
- Is the vicinity very crowded?
- Can you get a taxi conveniently?
- Is there parking available?
In this article, I would like to share the pros and cons of New York City’s different neighborhoods from the standpoint of a company’s tenancy.
Many may be surprised to learn that this is actually the most expensive neighborhood in New York City. The attraction of Flatiron/Chelsea is mostly for millennials. They like the commute, as a majority of this generation lives in Brooklyn. There is also a “vibe” factor, particularly for Technology, Advertising, Media and Internet firms (TAMI). Their employees want to be in Flatiron/Chelsea because of the restaurants, the stores, and the other like-minded companies in the area.
However, the buildings in Flatiron/Chelsea are usually grade B or C buildings. They have inadequate elevators, HVAC systems, electricity, and overall, are of a much lower quality compared to those in Midtown or Downtown. What compounds the situation is that the inventory in this part of town is much smaller than the inventory in the Midtown or Downtown markets, with many tenants competing for the same limited space. Moreover, these are mostly small-to-medium-sized loft buildings of about 50,000 square feet total. As a result of all these factors, the cost of the spaces in the Flatiron/Chelsea neighborhood has approximately doubled in the last six years.
Average Flatiron/Chelsea office rents: $70 psf
Wall Street Area
The Wall Street area has many major New York City office buildings of grade A quality. This area has seen an increase in prices in the last five years as a result of a spillover of tenants from the Flatiron/Chelsea market.
Tenants that can’t afford nice space in Flatiron/Chelsea are attracted to the Wall Street area in part because it has excellent subway access. In addition, since Conde Nast moved into 1 WTC in 2014, the hip factor has been on a steady incline in this once stodgy area.
Average Wall Street Area office rents: $55 psf
Penn Station Area
The area surrounding Penn Station has also benefited from the migration of companies that can’t afford the space they want in the Flatiron/Chelsea market. Rather than heading south to Wall Street, many companies have headed slightly north to the Penn Station area to find appropriate space.
The landlords in both the Wall Street and Penn Station areas are trying to attract TAMI tenants by aiming their marketing to the TAMI firms. They’re adding tenant amenities such as food halls, gyms, and Soul Cycles—trying to make their buildings appeal to the millennial workforce.
Average Penn Station Area office rents: $55 psf
Grand Central/Midtown East
Surprisingly, this is where the best bargains can be found in today’s market. The area has many major, class A office buildings that have a minimal hip factor. However, they are excellent buildings with high-quality services in terms of elevators, building systems, air conditioning, electricity, the internet, and concierge. Despite all of these advantages, TAMI companies often rule out this area as it is “not cool.”
In fact, you can get space in a grade A building in the Grand Central/Midtown East area for $50 a foot, whereas in Flatiron/Chelsea good space is $70 a square foot—and the buildings are not as high quality. To me, the Grand Central/Midtown East market is a screaming bargain from an office space perspective. It has excellent transportation with Grand Central and seven subway lines. We are starting to see some tech firms such as Facebook and Linkedin relocate and take advantage of these opportunities.
Average Grand Central/Midtown East office rents: $60 psf
Looking for a good deal on office space? Please contact us! We can help you navigate the neighborhoods of New York City to find the best lease for your firm.
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