“The New York real estate demand is huge among Art Dealers,” said the art dealer Perry Rubenstein, who added that the contemporary art market was “accelerating as we speak.”

While the market is red-hot, many prominent New York dealers are scrambling for ever more gallery space. Some of them have traded up to bigger spaces that allow them to show larger works, while others have opened second — or even third — galleries.

Art dealer Perry Rubenstein.
Photo: Andrea Mohin

The competition for gallery space is probably fiercest right at the heart of the art market in Chelsea, the neighborhood that has become a magnet for contemporary art collectors. The core gallery district stretches roughly from 20th to 26th Streets between 10th and 11th Avenues. There are a handful of galleries a bit north or south, but almost everything is west of 10th Avenue.

“That’s where the hedge fund people go to drop a lot of cash,” said Matthew Bergey, a real estate broker at CB Richard Ellis, who is an art collector himself. “They enjoy art, and they are also trying to get into the right social stratosphere,” by collecting contemporary art.

Mr. Bergey said the tight market for space in the Chelsea gallery district is forcing out many young dealers. Some of them are taking space a few streets farther south, toward the West Village, while others are opening galleries on the Bowery, in the East Village. But when new space becomes available in Chelsea, it is usually the better-established dealers who can snare it.

A decade ago, this small outpost on the far West Side of Manhattan was mostly occupied by warehouses and parking garages. Then, there was a sea change in SoHo, a nearby neighborhood that was filled with art galleries at the time, but is now mostly dotted with luxury shops.

Back in the mid-1990s, when name retailers started paying annual rents of more than $200 a square foot in SoHo, warehouses in Chelsea were renting for $8 or $9 a square foot. The art dealers started moving to Chelsea in droves, and landlords were soon able to charge more than $20 a square foot, said Alan Weisman, a real estate broker at Grubb & Ellis.

The rent increases did not stop there. Mr. Weisman said a Chelsea warehouse that fetched $8 a square foot in 1995 might rent for $80 a foot today. He said that even above the ground floor, gallery space can rent for as much as $50 a square foot now.

This has not suppressed demand. Storefront leases within these few square blocks are so prized that some well-connected dealers have started taking two or three of them.

For example, Paula Cooper already had two galleries, at 521 and 534 West 21st Street, when she stumbled upon her third space. Ms. Cooper, who lives in the neighborhood, was passing a gallery and saw that the occupants were moving out. She quickly sublet the space, “mostly because it was there,” said Steve Henry, the director of the Paula Cooper Gallery. “It was a bit serendipitous.”

Paula Cooper has just opened the first show in this new gallery at 465 West 23rd Street, just east of 10th Avenue.

To be sure, Chelsea is not the only art district in Manhattan. There has long been a nexus for art dealers uptown on 57th Street near Fifth Avenue, which is close to the Museum of Modern Art.

This is also, not incidentally, right on the doorstep of some of the dealers’ best customers. Many hedge funds have offices nearby; and the Upper East Side, where many of the city’s wealthiest residents live, is a short walk away. But even many prominent dealers who are well established on 57th Street feel the urge to open galleries in Chelsea.

Marlborough Gallery, a large dealer with galleries all over the world, has had its New York headquarters on 57th Street just west of Fifth Avenue for decades. Last year, it closed its old Chelsea outpost on 19th Street near Seventh Avenue, in part because that was too far east of the Chelsea market, said Tara K. Reddi, the vice president of Marlborough Gallery in New York.

Marlborough tried negotiating with the photographer Annie Leibovitz to purchase a renovated garage that she owned on 26th Street between 10th and 11th Avenues. But after losing that bid, the gallery heard about a parking lot one block south where a developer was planning to build a commercial condominium building. “I always think that it is better to own,” Ms. Reddi said.

Marlborough was one of the first galleries to buy a condominium in the Chelsea Arts Tower, at 545 West 25th Street. All of units in this 20-story building, which was completed in January, have been sold — most of them to art galleries or fashion-design showrooms. Marlborough purchased the first two floors. By getting in early, it was able to specify how it wanted the space configured.

The gallery, which is to open in September, will have about 4,000 square feet of indoor exhibition space and a 1,200-square-foot terrace on the second floor, where smaller sculptures can be shown.

One block south, half a dozen dealers have rented storefronts in a new 16-story luxury residential condominium building. This building, at 555 West 23rd Street, runs through to 24th Street and has three galleries on each side.

Jeff Levine, the president of Douglaston Development, the building’s developer, said he knew he would be renting these storefronts to galleries, because “that block of 24th Street was wall-to-wall galleries.”

So, he said, the retail space was designed to suit the needs of galleries, for example, by providing large windows and high-quality entrances. The developer also invested in a top climate control system because “art is very sensitive to temperature and humidity,” Mr. Levine said.

Mr. Rubenstein opened his third gallery on West 23rd and 24th Streets in this building. Clearly, he is among this neighborhood’s true believers. He said that by now, even far-flung artists have caught on to the mystique of Chelsea.

“If you go to Berlin and tell an artist that you are only going to show them on 57th Street and not in Chelsea, they won’t show with you,” Mr. Rubenstein said.