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Housing trend is good news for Flatiron's commercial landlords.

A major factor of short supply and high demand in the Flatiron District is the conversion of commercial space to residential space. As landlords realize they can sell their buildings for record prices, some have opted out of leasing commercial space and have converted their buildings for residential use.

This is good news for remaining commercial landlords, especially those who lease small space. The already tight market has grown even tighter as office space has dwindled.

With several prominent buildings, such as 16 W. 19th St., 32 W. 18th St. and 111 W. 19th St. being outfitted for residential conversion, commercial landlords will likely receive more tenant traffic.

The landlords who opt to keep their properties as commercial space might not match the profits of their residential counterparts--at least not initially. But over time, the demand for their properties will be consistent.

Another advantage to staying with commercial space is an environment of decreasing landlord concessions. With supply continuously decreasing and demand increasing, landlords will be in a position to negotiate deals more advantageous to themselves. And with the Flatiron District gravitating toward increased residential conversion, businesspeople living in the area will likely want to keep their companies local as well. This will boost the commercial space market. In addition, the landlords who keep their properties commercial might be patting themselves on the back if the economy continues to improve and interest rates rise--a factor that could eventually put a crimp on the residential marrket.

There has always been a demand for space between 3,000 and 5,000 square feet. Businesses are always growing or shrinking and new companies are frequently being formed. In sluggish economies, landlords can easily accommodate tenants who wish to downsize. Larger spaces might take longer to lease, but demand will nevertheless increase.

The rise of commercial rents during times of residential conversion is nothing new. The trend began with J-51 conversions about 25 years ago on the West Side in areas like West Chelsea and the Meatpacking District. The changing market eventually drove out the nightclubs and noisy entertainment hubs in favor of art galleries and chic retail establishments. The neighborhoods are newly peaceful as residential conversion continues eastward toward the Flatiron District, causing more demand for commercial space.

A prime proven strategy for a landlord to maintain low vacancy rates is to upgrade buildings by installing new elevators, new windows and upgrading basic essentials. But with demand increasing, even raw spaces may likely soon lease for a premium.

With the rents rising, some landlords are likely to be in the enviable position to negotiate renewals quickly, retaining tenants by offering fixed rents over a set period of time. Many tenants, who would otherwise pay mere under a new landlord, will be further enticed to stay in their current spaces.

With residential space in constant demand and businesses still maintaining a healthy appetite for space in the Flatiron District, the future looks bright for this intriguing and unique area of real estate.



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Title Annotation:Commercial Sales & Leasing
Author:Bonett, Alan
Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Nov 17, 2004
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