Hudson Square getting hot again

Real Estate Weekly, June 4, 2008 by Jason Turcotte

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Media companies known for penning a good story have begun making headlines of their own, as more publishing firms continue to ink leases in Hudson Square.

Now a neighborhood historically recognized for its industrial loft space is emerging as a top Manhattan hub for creative niche enterprises.

Robert Burton, senior director at Massey Knakal Realty Services, says the Hudson Square market has recently been coined a "leading" or "edgy" neighborhood. Once regarded as an old printing village, then an emerging technology market, the neighborhood is now known as a gathering place for designers, artists and intellectual property firms.

The transformation began with the influx of boutique advertising agencies. Now publishing companies, communications firms and others in the creative arts are vying for space here--and that's churning commercial leasing transactions at a time when most submarkets are at a standstill.

"Hudson Square is the center of creative industries of all types," said Carl Weisbrod, president of Trinity Real Estate. "As the number of creative firms increases and as Hudson Square becomes ever more diversified and active, we are seeing the area become one of the most distinctive in New York City."

Trinity is perhaps the prolific owner in the neighborhood, and Hudson Square's most recent commercial lease landed at 304 Hudson Street--a Trinity-owned building. There Y's America, Inc./U.S.A., led by renowned fashion designer Yohji Yamamoto, took 8,300 s/f to establish its U.S. headquarters. But Y's America is just one of many noteworthy deals closing in the area since the start of 2008.

Newsweek capped off a busy month of May leasing in Hudson Square with its relocation from 1775 Broadway, where it had previously occupied nine floors for 15 years. The popular news magazine committed to 163,000 s/f space for its headquarters at 395 Hudson Street. Josh Kuriloff, an executive vice chair at Cushman and Wakefield and one of the brokers representing Newsweek, cited the large floorplates--conducive to collaborative work environments--as a major draw for the publication.

Also vacating 1775 Broadway, the New York Review of Books, signed for 15,000 s/f of space at Trinity's 435 Hudson Street earlier this year. The biweekly publication, along with Newsweek, now join the likes of other Hudson Square-based media companies like Miramax, Clear Channel, Viacom and New York Magazine.

While Burton notes that the bulk of new commercial companies in Hudson Square hail from midtown, that's not to say firms beyond the New York market haven't noticed the neighborhood's potential.

Last month Colorado-based Dish Network Corp. inked a six-year lease for two full floors, totaling nearly 30,000 s/f, at 185 Varick Street. And naming rights of the six-story building were tagged into transaction terms, evidence of the satellite television company's commitment to the area (an expansion of Dish's space there is anticipated down the road). And similar to Newsweek, Dish demonstrated a strong interest for unconventional loft space.

"They didn't want a traditional Madison Avenue sales office," said Ira Rovitz, a Grubb & Ellis broker who represented Dish Network's entrance into the New York market. "They wanted a loft-type feel to it."

According to Rovitz, asking rents at 185 Varick are $46 psf. While the area is one of the busiest neighborhoods in terms of leasing, that doesn't mean demand has driven up pricing. Burton estimates commercial prices are standing pat.

"The tide may not be rising but it's certainly not falling," Burton said. "Though we are seeing a slight decrease in active buyers."

More specifically, today's market conditions have sent the "flippers" packing, leaving a shorter but savvier list of interested parties. And those parties have indicated a variety of reasons as to why Hudson Square is high on their radar.

For one, said Burton, liberal height restrictions and a high FAR (floor area ratio) are attractive to developers, who he says have been quietly "combing through the area."

Though the flurry of leases proves to be a promising sign for Hudson Square, Burton cautions that lenders remain weary of projects labeled "condo" or "development," as financing is harder to come by. And before the area can fully transform, the community needs to entice more retail, which he cites as the neighborhood's "number one lag."

But with the addition of several creative firms, the influx of commercial tenants should spur demand for daytime retail. Burton also notes that a proposed Business Improvement District for Hudson Square is--finally--gaining some traction. And he said some developers have expressed an interest in building hotels in the area--another sure step toward attracting additional retailers.

Regardless of whether the retail sector materializes, Burton foresees a solid year for commercial real estate in Hudson Square. "I see a lateral market right now," he said. "But I don't see a busting out, if you will."