Byline: Leonard McCants

NEW YORK — The image of Seventh Avenue continues to undergo transformation.
Fallout from a slumping economy, coupled with displaced tenants from the World Trade Center moving into the district, is accelerating the evolution of the fashion center away from apparel manufacturing and marketing to a diversity of tenants, real-estate sources said.
A glut of space opened up by defunct Internet concerns, which had moved into fashion turf in recent years, and a general economic malaise have caused prices in the district to fall 10 to 25 percent. With the dot-com demise, realtors said the ratio of new apparel firms to nonfashion concerns is not enough to keep the district balanced toward its core.
Late last month, Oppenheimer Funds, the large mutual funds manager, signed a lease for 135,000 square feet in 498 Seventh Avenue, also known as the Bates Worldwide building, named for the large advertising agency that invaded Seventh Avenue in 1999.
Oppenheimer, which formerly occupied space in 2 World Trade Center, signed a 10-year lease for all or part of five floors in 498 Seventh Avenue and started moving in Monday.
The trend toward these types of leases does not seem to be waning, as landlords continue to market large swaths of space, including more than 150,000 square feet in 501 Seventh Avenue, exclusively to nonfashion companies.
“We see the fashion industry continuing to contract,” said George Tockstein, senior asset manager at Wien Malkin, a real-estate law firm that represents fashion center landlords, including the manager of 501 Seventh Avenue. “The manufacturing is being done less and less in New York and I see that trend continuing.”
Other recent deals include Skadden Arps, Meagher & Flom, the large law firm that took additional space in 1460 Broadway for back-office workers, the sales office of Carter & Burgess, a Forth Worth-based architecture and engineering consulting firm, which moved into 2,000 square feet in 37 West 39th Street from the World Trade Center and Blue Cross Blue Shield, which signed a lease for part of 11 West 42nd Street at the edge of the district.
“The garment center has always been attractive and will be more attractive as the factories leave,” said Ira Z. Fishman, senior vice president at Winoker Realty Co. “The future of the garment center will not be the garment center.”
The total of nonfashion-related firms has increased more than 20 percent since 1999 from less than 1,000 companies, or 30 percent of the tenants in the district, to more than 1,300 concerns, or 37 percent of the tenancy, according to a survey conducted for the Fashion Center Business Improvement District.
That report also found that the percentage of nonfashion employees rose more dramatically in the same period — from less than 30 percent two years ago to more than 40 percent this year — said Danniel Maio, co-founder of Identity Map Co., who has been culling leasing information for the FCBID since 1994.
“The [nonfashion] categories are taking bigger floor plates,” Maio said. “And manufacturing seems to be losing a greater amount of space on side streets to showrooms. And the showrooms are losing out to the [nonfashion] companies or other showrooms” on the avenues.
“It wasn’t a big concerted effort to get rid of the fashion tenants,” said Jerry Scupp, deputy director of the FCBID. “You could say we’ve got a lot of architecture companies or photo studios, but those pale in comparison to the thousands of fashion companies and that doesn’t take into account all the ancillary companies. We’re certainly here to help the industry, but we don’t control the properties.”
When the survey was first done in 1994, fashion represented 89 percent of the garment center leaseholders.
As the FCBID’s survey points out, the makeup of the district has been in flux for several years, but as dot-com companies in need of office space flooded the fashion center with tenants, rents in the area rose to new levels. At its peak in fall 2000, prices for space topped out at $35 to $50 per square foot.
This year, as the economy softened and Internet companies sought to sub-lease space, rents were driven down to $28 to $40 per square foot. The decline has been especially dramatic on the side streets, where space was long considered unappealing to fashion companies because of the lack of light, views and building architecture, real-estate executives said.
Even as these dot-com companies have moved on or gone out of business, the replacement tenants for the most part have not come from the fashion sector, according to Laura Pomerantz, a partner in PBS Realty Advisory Services.
“The garment center is becoming somewhat decentralized,” said Pomerantz. “So it’ll be a different tenancy. It’ll be financial companies, hedge funds companies, architectural firms or it could be software design companies.”
But it’s not all bad news for the fashion industry. Several smaller companies have staked their claim on parcels in the district, including David Rodriguez, Sean John and hip-hop labels Plugg and a Rocawear licensee.
For David Rodriguez, an upcoming ready-to-wear house, the softening of the real-estate market allowed it to open its own showroom. The company picked up a 2,200-square-foot location in 252 West 38th Street, between Seventh and Eight Avenues, for about $22 per square foot, which is about 15 percent less than what the landlord originally requested, in addition to a few months of free rent, according to David Goodrowe, president and principal.
While they did look at other areas in Manhattan, including the meatpacking district, they settled in the garment center because of the nearby amenities.
“We have the place we buy our linings two buildings down and we’re right across the street from the post office,” Goodrowe said. “What we pay extra for being here, we make up in convenience.”