Executive summary

In the summer of 2002, the Fashion Center Business Improvement District, contracted with Appleseed, Real Estate Solutions and Buckhurst Fish & Jacquemart to assist the BID in assessing the impact that current conditions and longer-term trends in employment, space utilization, and real estate market conditions have had on the district. The team was also asked to consider the effect of ongoing and proposed developments around the BID. These analyses formed the basis for a strategy to help businesses and property owners in the area take full advantage of the various opportunities presented by these trends.

This report presents the results of the team's work.

A New Vision for the Fashion District

There has been a longstanding debate as to what policies make sense for the Fashion District. City policy has traditionally emphasized trying to maintain in the area the full range of fashion related businesses. Some industry participants and outside observers have long believed that maintaining a base of apparel and warehouse functions in the neighborhood is essential to the smooth functioning of the design, marketing and sales segments of the fashion industry. However, it seems this premise has not been borne out, as apparel production activity has steadily declined in the area over the years, while other segments of the industry have remained relatively stable.

Therefore, rather than being bound by past views of what makes sense for the neighborhood, the City should embark on a new agenda that looks to leverage the obvious strengths of the Fashion District. Policies that take advantage of the competitive strengths of the Fashion District neighborhood, and seek to realize its development potential, will yield substantial benefits to New York City. Improvements to the existing stock of commercial and industrial buildings can create opportunities to attract a more diverse tenant base to the Fashion District. This would not only reinvigorate the neighborhood but would also help provide space for growing segments of the City’s economy - a challenge that proved difficult for the City during the economic expansion of the late 1990s. Revitalization of the area will also stimulate growth in what has been an under-performing tax base, as higher paying tenants will increase the rent rolls and stimulate new investments in property.

The continued evolution of the Fashion District into a mixed-use neighborhood, with a more diverse tenant base, more interesting retail and opportunities to build on the nearby residential community, would create a livelier district with around-the-clock activity and amenities. This new, dynamic Fashion District neighborhood would serve as an ideal complement to Times Square's vibrant commercial and entertainment district and the future mixed-use community that is being envisioned for the Hudson Yards area.

Current Employment and Historic Trends in the Fashion District Neighborhood

Looking at employment in the Fashion Center BID area reveals an interesting mix of employment in fashion related and non-fashion industries. As it has been for several decades, the Fashion District neighborhood remains the home of New York’s bustling fashion industry. However, it seems that the concentration of neighborhood jobs within fashion-related industries has been shrinking, as factories are being replaced with a more diverse range of tenants.

• The current employment profile of the Fashion District neighborhood shows that fashion-related industries still account for the largest share (46.6 percent) of the area’s employment, which totaled 106,020 workers in 2001. Employment in wholesale trade-apparel, apparel retailing, apparel manufacturing and textile manufacturing accounted for 49,438 jobs in 2001. Employees of apparel wholesalers made up the largest single employment group.


• Non-fashion industries accounted for the remaining 56,582 jobs found in the BID, more than half of the total employment base. While no single industry dominates in the "non-fashion" category, a few individual sectors do have a significant share of the area’s employment base, including business services with 11,439 employees and engineering/accounting/research with 3,404 employees.


• The Fashion District has undergone significant changes in terms of employment since the late 1980s. Between 1989 and 2000, dominance of fashion-related activities in the Zip Code 10018 (an area slightly larger than the BID area) has slowly waned. Most of this decline is attributable to substantial losses in employment among apparel manufacturers, who saw employment totals fall 30.6 percent (21,550 in 1989 to 14,601 by 2000).


• While employment among fashion-related businesses in this neighborhood has declined, the number of jobs in service sectors has been on the rise since the late 1980s; significant gains in employment among communications firms, finance and real estate firms, recreational service companies, health service providers and social service agencies have increased the share of non-fashion industries in the neighborhood.


• In many ways, employment trends seen in the area of the Fashion Center BID reflect the experience of the City’s overall economy. Just as in the Fashion District, both Manhattan and New York City overall experienced significant job losses in the fashion-related industries. Most of these losses can be attributed to the steep declines seen in apparel manufacturing employment.


• Yet, some employment patterns exhibited elsewhere in New York City have bypassed the Fashion District area. Industries such as business services, legal services, motion pictures, engineering, accounting & research services, and educational services all saw employment totals rise between 10 and 100 percent in New York City between 1988 to 2000. Yet, Fashion District firms in these industries lost employment or experienced much lower levels of growth than seen citywide. This sluggish employment performance within some of the most dynamic industries in New York City suggest that the Fashion District is failing to live up to its full economic potential.

Tenancy and Space Utilization

• According to a 2002 survey by Identity Map, the Fashion Center BID contains 380 separate commercial and industrial buildings with approximately 32 million square feet of space.


• There are 6,595 tenants in the BID area occupying 27.0 million SF of space (an average of 4,096 SF per tenant). There are 4,245 tenants in fashion related industries (including apparel, textiles/fabrics, accessories/jewelry, and buttons/trimming) compared to 2,248 tenants in non-fashion industries. No one industry dominates among non-fashion tenants, and instead there is a rich variety of non-fashion businesses located in the BID.


• In terms of space, fashion-related uses account for the largest share of occupied space in the BID, covering 17,630,717 SF of space (about 55 percent of total). Non-Fashion uses account for 9,382,547 SF (about 29 percent of the total)


• Within the 17.6 million SF of space occupied by fashion-related tenants, the greatest proportion (some 5.0 million SF) is occupied by showroom uses. Approximately 2.5 million SF is utilized by office-based fashion tenants, while 2.4 million SF are occupied by firms engaged solely in the manufacturing of apparel and other fashion-related goods. In addition, almost equal shares of space are utilized exclusively for either design (674,625 SF) or warehousing uses (603,207 SF). A large portion of the space occupied by fashion-related uses - some 6.4 million SF of space - is attributable to firms engaged in a mix of uses. In particular, combinations of showroom and design, warehouse and showroom, and design and office account for a significant amount of space in this neighborhood.

Real Estate Market Trends

The real estate market in the Fashion District area is best described as a sub-market of the larger midtown Manhattan market. The area is distinct from other parts of midtown in that its office stock is more heavily weighted to class B/C space rather than class A buildings. In addition, the area is characterized by its tenant mix, which includes industrial uses (manufacturing and warehouses) interspersed with the dominant tenant groups of wholesalers and office users. Finally, there is very little residential use in the BID area, most of which is west of Eighth Avenue.

Located just west of what is considered the "midtown core" of class A office space, the Fashion District is well positioned within the market. It is particularly well served by midtown’s mass transit network, with two regional transit hubs within walking distance - the Port Authority Bus Terminal to the north and Penn Station to south - and stops along 17 New York City subway lines and the New Jersey PATH train system.

Office Market

• The Fashion District tracks changes in the broader midtown market, but because of nature of its tenant mix, existing real estate market product and restrictive zoning policies, the area generally under-performs the rest of midtown in terms of rent.


• Due to the decline in the general economy, the overall midtown market has declined steadily since the end of 2000. However, class A net absorption in the Fashion District was a positive 152,000 SF over the past six quarters, while it was a negative 2,946,000 SF for the overall midtown market. This suggests that the lower rental rates offered in class A space in Fashion District have provided a competitive advantage in attracting cost conscious tenants seeking less expensive space.


• Prior to September 11, 2001, there was a strong trend within the Fashion District toward conversion of manufacturing space to office. Although that trend appears to have slowed, the relatively strong demand for class A office space within the Fashion District in comparison to other areas of midtown provides support to the idea that the conversion trend will return along with the overall economic recovery in the area.

Residential Market Trends

• Residential use is quite limited in the area of the Fashion District. However, the area is book-ended by residential activity - with the well-established residential community along the Ninth Avenue corridor to the west and new residential buildings sprouting up to the east near Sixth Avenue. While the current zoning does not allow residential uses within much of the area, there is strong potential for incorporating successful residential uses into the mix in the Fashion District.


• Residential development trends also indicate that developers expect any decline in rental rates to be short lived, as developers and investors continue to introduce new rental construction projects throughout the borough. Several new construction projects are underway throughout the City, including one recently opened in the Fashion District and one just outside the boundaries of the district on Ninth Avenue.


• In addition to these new construction projects, the conversion to residential use of an existing building on 36th Street in the BID was recently announced.

Retail Market

• The recent performance of the retail market indicates that, despite the decline in the local and national economy, there is still healthy demand for retail space in midtown Manhattan. The recent report by Real Estate Board of New York indicates that retail asking rents per square foot are up in 3 of 5 categories over the past year, and over the past 2 years rents are up in all categories.


• Despite the strength of the midtown retail market, little growth has occurred within the approximately 1.7 million SF of retail inventory within the Fashion District, due primarily to the following:
  
  
  • Non-contiguous retail frontage interrupted by loading docks and warehouse space
  
  
  • Limited pedestrian traffic
  
  
  • Trucks and deliveries that impede pedestrian flow
  
  
  • Inadequate merchandising and signage
  
  
  • Non-complimentary tenant mix and no cohesive leasing plan
  
  
  • A small number of residents with limited spending power
  
  
  • Competition from destination retailing in Times Square, Macy's, Herald Square and the 34th Street shopping district
  
  
• There is potential to improve the performance of existing retail, but a separate retail study is needed to determine the appropriate strategy.

Current Zoning Conditions

The Fashion Center Business Improvement District is governed by two different sets of zoning standards.

• The eastern portion of the BID is generally zoned as a high-density commercial area that allows light manufacturing, commercial office and residential use.


• Most of the BID area west of Broadway is included within the Special Garment Center District, a special zoning area designated by the City Planning Commission in 1987. Residential use is prohibited throughout the area, and the side streets are designated as a "Preservation Area" with restrictions on the conversion of manufacturing space to office.

Prospects for Rezoning and New Development in the Fashion District

Rather than viewing the Fashion District in the context of the current zoning, there seems good reason to re-conceptualize the area based on what uses might evolve under less restrictive use regulations.

• The building types and land uses found within the Fashion District vary considerably across the district.
  
  
  • A street level survey found the area from Fifth to Eighth Avenue to be generally built out to full capacity, with tall buildings (FAR 10 or greater) and no vacant land.
  
  
  • In contrast, the area between Eighth and Ninth Avenues is populated by many low-rise buildings (FAR 5) and numerous surface parking lots.
  
  
  • The area also has a modest concentration of residential units, and is bordered by ongoing residential development to the west along Ninth Avenue.

• These unique characteristics suggest that the western portion of the Fashion District has strong potential for new and redeveloped residential use and thus should be considered in a somewhat distinct zoning context from the rest of the district. The area also deserves special consideration as it has been included in the boundaries of the City Planning Department’s Far West Side study area.


• The area between Eighth and Ninth Avenues has an existing residential presence. In addition, there are 20 buildings with strong potential for residential conversion and could potentially provide between 550 to 650 units.


• This area also includes several large sites that could accommodate 585,000 SF of new residential development (approximately 585 housing units) under the current allowable FAR of 5.0. With a more generous FAR (which is typical of other mixed use districts in Manhattan), these sites could accommodate perhaps twice as many units of housing.

Trends and Developments Shaping the Future of the Fashion Center

There are a variety of forces at work in and around the Fashion District that will have an impact on the neighborhood’s evolution. These forces include:

Continued Erosion of the City's Apparel Manufacturing

• The fundamental shift in the structure of the fashion industry shows no signs of reversing, strongly suggesting continued decline in employment among apparel manufacturers.


• If historic decline rates were to be carried forward, by 2010 apparel manufacturing in the City would be just above 17,000 -- less than half of what it is today. While this decline may be softened by efforts to bolster demand for the services in which New York City producers specialize, a continued drop in employment is almost assured.


• If the decline in employment among apparel manufacturers is likely to continue, it seems equally certain that the amount of space required by apparel manufacturers will also continue to decline. This fact has serious implications for the positioning of future policy to encourage economic development within the Fashion District.

Continued Growth in Demand for Office Space

• Despite the current demand conditions in the market today, the long-term need to increase the supply of commercial office space in New York City has been acknowledged in a variety of studies and analyses.


• Projected levels of growth in office-based employment will trigger significant increases in the demand for office space in the City, or elsewhere in the region if suitable space cannot be provided within the NYC market. While there are significant opportunities for new office development at sites throughout New York City, these new construction projects will not serve the needs of smaller firms looking for office space.


• Existing properties in the Fashion District, with access to superior transportation networks and proximity to the rest of midtown, will be well positioned to capture this particular segment of growing demand. With investments in building improvements and neighborhood amenities and amendments to current use restrictions, the Fashion District will be poised to benefit from the future growth of small and mid-sized entrepreneurial firms in the next business cycle.

Growing Importance of Creative Industries in NYC Economy

• A number of "creative" industries are growing in the City economy. This is good news for the future of the Fashion District, as the presence of the fashion industry can serve as an anchor to attract other creatively oriented industries.


• Firms in these industries, which include film/visual arts/photo studios, advertising/marketing/graphic design, internet/network based, architectural design, music, non-profit theaters and cultural organizations, and magazine/book publishing, tend to be small and attract an employment base that looks for a more unusual physical environment. Thus, with many lofts and underutilized warehouses, the Fashion District area has a potential advantage in attracting these tenants as the City's economy emerges from the current economic slump.

Strong Demand for Housing

• The demand for housing remains strong in Manhattan. While there has been residential development activity on the periphery of the Fashion District, the existing zoning has prohibited the conversion to and development of housing units in the district.


• There are many opportunities to generate new housing in the blocks between Eighth and Ninth Avenues. If the zoning were changed to permit the housing to intermingle with the commercial and manufacturing uses that exist on those blocks, it is very likely that other complementary uses including restaurants and retail would also spring up.


• These additions to the mix of activity in the area would help enliven the neighborhood and invigorate the non-residential areas of the Fashion District.

Impact of Development of Adjoining Areas

Numerous office, retail and transit projects are slated for development in midtown Manhattan. These developments offer the possibility of spurring additional investment and economic activity in the areas that surround them, including the Fashion District. The most notable projects include the following:

• Penn Station Redevelopment (transit & retail)
• No. 7 Subway Extension (transit)
• Port Authority Bus Terminal (office & retail)
• New York Times (office)
• 7 Times Square Tower (office & retail)

These projects have the potential to draw thousands of new commuters, office workers and shoppers to the areas immediately surrounding the Fashion District. The vitality of Times Square to the east, and the prospect of dramatic improvements to the west, puts the Fashion District at the crossroads of vast new development activity and public investments.

Lost Opportunities: The Downside to Maintaining the Status Quo in the Fashion District

The existing conditions in the Fashion District - the limits of office use, restrictions on residential development and under-performing retail - already imposing substantial opportunity costs, both in terms of lost income and City tax revenues.

• These costs could grow if policymakers fail to take action to confront the forces at play in and around the Fashion District. Without efforts to drive new investment in the area and to attract the dynamic, growing segments of the City's economy, the economic expansion that is poised to occur in the surrounding areas will simply bypass the Fashion District.


• In addition, if the Fashion District does not evolve to attract more shoppers, tourists and business activity, the neighborhood could fail as a connection between midtown and the Hudson Yards, jeopardizing the success of this massive investment. Additionally the City’s Olympic development will be compromised by its proximity and striking contrast to the Fashion District.

Implications for the Fashion District Strategy

The analysis of current conditions and recent trends in employment, space utilization and real estate market factors demonstrates the need to take a new look at the Fashion District. As the City’s economy grows increasingly more dependent on office-based industries and multi-billion dollar public and private investments are reshaping the surrounding areas immediately encircling the area, powerful forces are pushing the Fashion District to evolve into a more diverse, dynamic mixed-use district. This vision is achievable, but only if the BID and the City work together to take the necessary steps to facilitate the realization of that vision.

• The City can facilitate the continued evolution of the Fashion District as mixed-use, diversified commercial area by:
  
  
  • Implementing more flexible zoning throughout the Garment Center Special District, so as not to inhibit the conversion of space to office use.
  
  
  • Amending zoning to allow residential uses in the areas between Eighth and Ninth Avenues. Consider implementing a higher FAR for residential use consistent with rezonings in other commercial areas of Manhattan.
  
  
• The BID can continue to be active in improving the neighborhood’s amenities by:
  
  
  • Conducting a retail study for the Fashion District area to determine ways to improve the performance of existing retail space.
  
  
  • Continuing to invest in improved safety, lighting and streetscapes. The BID should also work with the City to consider policies that will reduce double parking of trucks and improve traffic flow.
  
  
• The City, the BID and other stakeholders can pursue projects for the area that will build on the prestige of the fashion industry and create an appealing identity for the neighborhood, such as:
  
  
  • A Fashion Museum and Design Center
  
  
  • Growing the performing arts
  
  
  • Cultural programming as an economic development resource
  
  
• The City, the BID and fashion industry participants can also work together to formulate and implement a sector-based strategy that will help sustain the fashion industry not just in the Fashion District, but throughout New York City.

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