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Wall Street Journal / Biz - Money

Garment District Landlords Set Their Sights on New Real-Estate Rules

Property owners in Midtown Manhattan’s Garment District say a new study shows how a zoning restriction that preserves space for the apparel-manufacturing sector is holding back economic growth in the neighborhood.

By

Keiko Morris

Jobs in Midtown Manhattan’s Garment District have grown in sectors from food services to professional business services over the past year, while office rents have increased and the neighborhood’s rapidly multiplying hotels boast some of the highest occupancy rates in Manhattan, according to a new study.

And yet the neighborhood’s economic growth is being held back, according to officials with the Garment District Alliance, the authors of the study.

They blame a 30-year-old zoning restriction that preserves space for the apparel manufacturing sector, which continues to decline.

Apparel-related production jobs fell to 4% of the neighborhood’s private employment last year from 5% in 2015, according to the study.

“You have a Midtown Manhattan location, the best regional transportation anywhere in the city of New York, and class B and class C office stock that is highly desired by the business services sector and is technically held off the market,” said Barbara Blair, president of the Garment District Alliance, a business improvement district funded by property owners and businesses. “We want the restrictions lifted, period.”

A controversial proposal announced earlier this year by the New York City Economic Development Corp. to end zoning protections within portions of the Midtown neighborhood is now on hold as the city studies a set of recommendations released in August by a committee of Garment District manufacturers, property owners and fashion-industry businesses.

City officials formed the committee after the proposal raised concerns in the fashion sector that the move could wipe out a centrally located manufacturing network. One of the committee’s critical recommendations ties any elimination of the preservation requirements to some mechanism providing long-term, affordable garment-manufacturing space in the neighborhood.

Many apparel-related businesses said the lifting of the zoning restriction without a strong program in place to help manufacturers stay in the district would accelerate their decline and threaten the city’s broader fashion industry, a fixture of New York’s identity and a magnet for young creative workers.

“We continue to believe that before we change the zoning and the protections for manufacturing that exist now, we need another way to keep manufacturers up and running in Manhattan,” Borough President Gale Brewer, who headed the committee, said in a statement.

One compelling committee recommendation for landlords was the proposed creation of a tax-abatement program to incentivize building owners to lease affordable space to production businesses. But the longer the zoning-preservation mandate remains, the Garment District Alliance as well as some of its allies on this issue warn, there will be missed economic opportunities and money left on the table as the apparel production in the neighborhood continues to decline.

Between 2014 and 2017, average starting rents for office space in the Garment District have risen 24% to $52.64 a square foot, according to the business improvement district’s study. But the district’s starting office rent trails surrounding neighborhoods such as Hudson Yards, where the average starting rent is $79 a square foot, or Times Square, at $67 a square foot.

The organization’s study revealed that total private employment in the district jumped by 50% between 2000 and 2016 to 134,159 jobs. The professional and business services sector, which includes advertising, architectural, engineering and technology firms, increased 168% between 2000 and 2016, the most recent year available. That sector’s workforce of almost 49,000 makes up a third of the district’s private-sector positions. Employment at food and drink venues rose 336% to 5,952 jobs in 2016.

Apparel wholesale jobs decreased only slightly, to 14,285, over the period. But apparel-related manufacturing jobs fell 68% to 5,538.

Advocates to preserve some apparel-manufacturing space in the district said they are under no illusions that manufacturing will return to previous levels under the continued pressures of globalization.

Yet, while the sector in the Garment District is small and fragile, its high-skilled, diverse specialties have made the area a prototyping center, where any garment with any embellishment imaginable can get made, said Joe Ferrara, president of Ferrara Manufacturing and chairman of the New York Garment Center Supplier Association. Pointing to the Garment District Alliance’s own assertions, Mr. Ferrara noted that the manufacturing zoning protections have limited rent increases, a benefit for production businesses.

“This is an incubator for small brands and launch brands,” Mr. Ferrara said. “This is an area to test new products. This is an area where product development, innovation and specialized quick-turn applications take the lead.”

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