Economic Profile 2007

Real Estate Profile

Midtown & Penn Plaza/Garment Office Markets

The Fashion Center BID is situated within the Penn Plaza/Garment submarket of the Midtown office market. According to The Costar Office Report (3rd Quarter 2007), the Midtown office market had 1,546 buildings with a total rentable area of 300.2 million square feet of space. Vacant space accounted for about 14.4 million square feet, or 4.8%, the lowest in years. Vacancy rates were as high as 9.1% in the 3rd quarter 2004, to 6.7% in the 3rd quarter 2005, and 5.4% in the third quarter of 2006. Asking rents in the third quarter 2007 averaged $66.25 per square foot, significantly higher than the third quarter 2006 of $54.95 per square foot, $48.21 per square foot in the third quarter of 2005, and $46.46 per square foot in the third quarter of 2004.

The Penn Plaza/Garment submarket had 450 buildings with a total rentable building area of over 66.5 million square feet of space. Of this total, there was 3.2 million square feet of vacant space, a 4.7% vacancy rate. Asking rents averaged $49.10 per square foot. Within this office submarket, there are differences between the Class A, Class B and Class C office space which is presented in the table below.

Fashion Center BID

This is the twelfth year that we have updated our real estate profile of the approximately 35.4 million square feet of total space within the BID borders. The two predominant building types (office and loft structures) account for approximately 31.2 million square feet or about 88% of the space. Office structures account for approximately 17.5 million square feet, and loft buildings for approximately 13.6 million square feet of space based on the building classifications as reported by the New York City Assessors Office. These classifications, however, do not reflect usage. There is a good deal of office usage in the larger loft type buildings.

Office Vacancy

The market in the Fashion Center can be characterized as a tightening market. The conversion of loft buildings to office space has changed the dynamics of the market, and the overall strength of the economy has produced a lower vacancy rate in the Fashion Center District. Based on recent industry reports of available space within the BID boundaries, the total space availability in both loft-type and office buildings has declined from about 2.19 million square feet to 1.97 million square feet. The overall vacancy rate (both office and loft buildings) is 6.3%, a small increase from last year. These trends are shown on Exhibit 11.

However, the amount of vacancies in the loft buildings have decline substantially. It is down from 1,395,000 square feet in 2004, to 792,000 square feet in 2005, to 748,000 square feet in 2006, and to 520,100 square feet in 2007. This is more a function of space being taken off the market for possible conversions to other uses opposed to a sign of leasing activity.

Office Rental Rates

Office asking rents have continued to rise over the past year. Side Street Buildings have an average asking price of $36.46 per square foot, compared to $30.19 per square foot in 2006. The Avenue Buildings have an average asking price of $47.53 per square foot compared to $37.75 per square foot from last year. Although asking rents do not necessarily reflect the full status of the marketplace, as a variety of concessions (greater tenant improvement allowance, a period of free rent, etc.) can be part of the overall lease agreement, the concessions previously offered in prior years are now virtually non-existent. This is an indication that the market is continuing to tighten and rent should continue to rise.

Garment Center Special District Zoning Designation

The Special Garment Center (GC) was created to maintain opportunities for apparel, production, wholesale and showroom uses in designated Preservation Areas on selected mid-blocks between West 35th and West 40th Streets, west of Broadway. In Preservation Area 1 (P1), east of Eighth Avenue, residences and hotels are not permitted and the conversional of industrial space to office use is restricted. Conversion to restricted uses is permitted only by certification of the City Planning Commission and that an equal amount of comparable floor area has been preserved for specified industrial uses.

In Preservation Area 2 (P2), between Eighth and Ninth Avenues, conversion of larger buildings (70,000 sf or more) to residential, office, or hotel use is permitted only by authorization of the City Planning Commission.

Profile of Preservation Area Properties

With the Preservation Areas (P1 & P2) of the Special Garment District area, there are a total of 182 properties, including two buildings that contain a total of 36 residential condominium units, each having their own taxlot number. Of this total, 61, or 33.5% of the total Preservation Area properties are residential buildings according to the NYC property classifications. A total of 11 properties, or 11.5% are either institutional uses, parking garage structures, or vacant parcels (many utilized for parking). Of the remaining 100 properties, representing 54.9% of the total, are identified as commercial buildings.

In an effort to provide a tenant profile of the Preservation Area buildings, we utilized database and tenant survey provided by the Fashion Center BID in order to determine the fashion-related and non-fashion-related businesses (ie. general office user).

Fashion Center BID Tenant Survey – Fall 2007

This information represents the results of a tenant survey performed by the Fashion Center BID. Based on completed surveys, information regarding the tenant name, location in the building, and type of industry was collected. Although the tenant survey covered the entire Fashion Center BID area, we have focused on the completed tenant surveys provided by firms situated within the Preservation Area buildings. There were a total of 1,685 respondents which were completed by establishments located within a total of 169 buildings in the Preservation Areas. The table below summarizes the data gathered by this tenant survey for the Preservation Area properties.

Retail Rental Rates

The retail space market has been steady over the past year. The vacancy rate increased slightly from 9.2% to 9.6% during this period, and the mix has not changed significantly; however, the non-retail frontage continues to decline as more space is dedicated to food, services, and convenience retail uses.

Retail rents continue to command a premium along the Avenues, while the side street locations reflect the lower end of the market. Broadway retail space asking rents range from $115 - $275 per square foot; Seventh Avenue from $125 - $225 per square foot; Avenue of Americas from $135 - $250 per square foot; Eighth Avenue from $75 - $150 per square foot and the side street locations from $35 - $85 per square foot.

While the rents in part of the Fashion Center sound high, they are still less expensive than Herald Square or Times Square, where rents as high as $300 to $350 per square foot are common. However, as our retail analysis indicates, there is plenty of retail potential in the area available to existing and prospective retailers. At many locations sales levels can easily support rents in excess of $100 per square foot. Exhibit 12 summarizes the area retail rents.

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