Garment Center a future haven for user groups.

Although there is speculation the Garment Center will cease to exist, we are experiencing record levels paid by user groups for vacant buildings in the area.

The Garment District, also known as the Fashion Center, is located from West 34th to West 42nd Streets between Fifth and Ninth Avenues.

Data shows that users are now paying more for property in this eclectic area as the city continues to encourage commercial and residential development on the west side of Manhattan. Meanwhile, natural market forces, such as cheaper labor overseas and rising rents in the area, are hurting the manufacturing industry.

Rising rents ihave forced many manufacturers to abandon their spaces and look elsewhere for cheaper space. Furthermore, a strong demand for new office space and residential housing in the west side was recognized by the city when it adopted the Hudson Yards zoning in January 2005. In recognition of development opportunities within the Special Garment Center District between Eighth and Ninth Avenues (Preservation Area 2), the recent rezoning of the Hudson Yards allows new high density residential and commercial development on predominantly vacant sites, and limited residential and commercial conversions of existing buildings.

As the west side continues to be developed, many showrooms and factories are increasingly becoming retail havens and, in some cases, development opportunities for real estate investors.

Some of the more notable and recent commercial developments in or around the area include the New York Times headquarters on Eighth Avenue between West 40th and West 41st Streets and SJP Properties' purchase of the eastern block front on Eighth Avenue at 41st in July 2006, to construct a 40-story office tower. There are 12 hotel development sites currently in construction in the neighborhood and three hotel sites ready to break ground in 2007.

Residential developers re also optimistic. Glenwood Management recently purchased a lot at 331 West 37th Street in August 2006 with plans to build a rental building. Silverstein Properties also recently announced plans to construct a 57-story rental building on their site on West 42nd Street and Eleventh Avenue. A joint venture between the Dermot Company and Equity Residential will also build two 18-story residential buildings above the Lincoln Tunnel's entrance from West 36th to West 38th Streets, between Ninth and Tenth Avenues.

As a result of these new developments, user groups are narrowing their search options for vacant space. Users typically pay a premium above the investment value of a building to benefit from occupying all or in some cases, a portion of the property for their own use. As developers continue to purchase properties in this area that retain a significant amount of available air rights, users will be forced to compete with these developers for air rights they wouldn't necessarily need.

Since 2003, Massey Knakal has identified six properties sold to user groups in the Garment Center. In fact, Massey Knakal sold 269 West 39th Street, a vacant four-story property, for $688.04 per square foot in August 2006, the second highest price paid per existing square foot in the Garment Center. The highest price paid per square foot in this area was $1,118.01 at 480 Seventh Avenue in October 2005--a corner property on an Avenue, which has more retail exposure.

As it becomes more costly for user groups to purchase buildings in this area, they will either have to pay more or look elsewhere in the city where they will not have to compete with residential developers.

Most of the areas surrounding the Garment Center have development potential. The only area within close proximity of the Garment Center that prohibits residential development is between Seventh and Eighth Avenues (Preservation Area 1) and it is likely this area will become a haven for user groups in the near future.

By David Kalish, Broker,

Massey Knakal Realty Services