Demand for New York’s best office buildings has not only picked up, it’s also causing a ripple effect.
Large tenants whose leases will be terminated in the next few years are rushing to reclaim space while it gets hot in the trophy towers.
Meanwhile, yet-to-be-built towers — like 175 Park Ave., 347 Madison Ave., 3 Hudson Blvd., 70 Hudson Yards and 2 World Trade Center — tempt anchor tenants with rents of $200 the foot in the hope of increasing. from the ground.
“We are going to have a moment of shortage at the high end,” said David Goldstein of Savills.
The availability rate for better buildings in Midtown is 8.5 percent, up from 15 percent four years ago, according to Newmark. Overall, Midtown’s availability is 16.6% but without sublets it is 13% on a direct basis. The average trophy rent is $143 per foot, with the rest of Midtown averaging $83 per foot.
“Occupants are spending more to be in the best buildings in terms of amenities and appearance,” said David Falk of Newmark.
That’s why there are no “big” options for big tenants in prime Midtown neighborhoods, said Bill Elder of RXR, one of the 175 Park developers who owns and leases buildings including 5 Times Square and Worldwide Plaza.
“Look at the effective vacancy rate right now and look at the pipeline of new buildings,” Elder said. “On Park, Madison and Sixth avenues, there is no room. Buildings A- and B++ could actually benefit from an elevator.
To meet this demand, 245 Park Ave. of SL Green is transformed with a new lower facade and amenities like a rooftop park. It has 300,000 square feet available.
“The market is not a monster market, but it is stronger than anyone thinks,” Falk said.
“While the old real estate mantra was ‘Location, location, location,’ it has evolved to ‘New construction, new construction, new construction.’ Now it’s also “Location, renovation, amenities”.
Peter Turchin of CBRE
Another 850,000 square feet are on the market at Brookfield’s reimagined 660 Fifth Ave. But that could be absorbed by Citadel, for example, which is looking for 400,000 to 800,000 square feet over the next 10 years, while one of its current offices buildings at 350 Park Ave. are demolished, rebuilt and ready for reinstallation.
Financial firm Jefferies, now located at 520 Madison Ave., is also looking for 800,000 square feet, brokers said.
When its new 2.5 million square foot headquarters at 270 Park Ave. is completed, JPMorgan Chase will likely keep its tower at 383 Madison Ave., but brokers say it could also keep the space at 390 Madison and 277 Park that it leased during construction. A JPMC spokesperson said the new building is expected to open by the end of 2025.
“It has 2.5 million square feet of flexible, collaborative space that can easily adapt to the future of work,” said spokesperson Michael Fusco.
Small financial tenants also have difficulty finding quality space to rent in the Plaza district. Adam Henick of Current Real Estate Advisors said every building he’s called for a client looking for 10,000 square feet by the end of summer has just been leased or has been leased.
“The majority of vacancies are at the base of the building, with poor lighting, poor air conditioning and no views,” Henick said.
Because of this need for speed, Lever House, at 390 Park Ave., is working on two pre-built, 10,725-square-foot floors at a price of $200 per foot. After Lever House’s 12th floor marketing space was snatched up by a tenant, they decided to build two more floors.
“The tenants haven’t allowed enough time (for construction) and it helps to show off the building,” said agent Caroline Merck of CBRE.
Brokers say tenants are willing to pay for well-managed and well-located spaces. That’s why, after quickly leasing a prefab floor at 527 Madison last year, Mitsui Fudosan America could also do the same with the 11,500-square-foot 8th floor that has access to the building’s outdoor terrace.
To attract tenants after IBM moves to One Madison, its current private amenity space at Edward J. Minskoff Equities’ 590 Madison at East 57th Street will be renovated by Gensler Architects to serve the entire building, according to agent Brett Shannon of CBRE. IBM’s 250,000 square foot space has an asking rent ranging from $106 to $120 per foot.
“While the old real estate mantra was ‘Location, location, location,'” said CBRE’s Peter Turchin, “it has evolved to ‘New construction, new construction, new construction.’ Now it’s also “Location, renovation, amenities”.
New York Post
