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NYC’s best Class A offices are already running out of space

Vaseline 2 months ago

Lois Weiss

Lois Weiss

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Demand for New York’s best office buildings has not only recovered, but is also causing a spillover effect.

Major tenants due to end their leases in the coming years are rushing to secure space in trophy towers while the weather is warm.

Meanwhile, yet-to-be-built towers — such as 175 Park Ave., 347 Madison Ave., 3 Hudson Blvd., 70 Hudson Yards and 2 World Trade Center — entice tenants with rents of $200 per foot hoping to rise from the ground.

SL Green’s 245 Park Ave. wants to take advantage of new benefits, including a rooftop park. SL Green

“There will be a moment of scarcity at the high end,” says David Goldstein of Savills.

The availability rate for better buildings in Midtown is 8.5%, up from 15% four years ago, according to Newmark. Overall, availability in Midtown is 16.6%, but without subletting it is 13% on a direct basis. The average trophy rent is $143 per foot, while the rest of Midtown averages $83 per foot.

“Residents are spending more to stay in the best buildings with amenities and curb appeal,” says David Falk of Newmark.

That’s why there aren’t “great” options for major tenants in key parts of Midtown, explains Bill Elder of RXR — one of the developers of 175 Park, which owns and leases buildings including 5 Times Square and Worldwide Plaza .

Meanwhile, Brookfield has 660 Fifth Ave. renovated to move 850,000 square feet of space. Brookfield Properties

“Look at the effective vacancy rate right now and the pipeline of new buildings,” Elder said. “There is no room on Park, Madison and Sixth Avenue. Buildings A and B++ may get a lift.”

To meet that demand, SL Green’s 245 Park Ave. transformed with a new facade and facilities such as a park on the roof. There is 300,000 square meters available.

“The market is not going gangbusters, but it is stronger than anyone realizes,” Falk said.

“While the old real estate mantra was ‘Location, location, location,’ it evolved into ‘New construction, new construction, new construction.’ Now it’s also ‘Location, renovation, amenities.’”

Peter Turchin of CBRE

There is another 850,000 square feet on the market at Brookfield’s newly remodeled 660 Fifth Ave. But that could be absorbed by Citadel, for example, which is hunting for 400,000 to 800,000 square feet over the next decade, while one of its current office buildings at 350 Park Ave. are demolished, rebuilt and prepared to move in again.

Financial firm Jefferies, now located at 520 Madison Ave., is also looking for 800,000 square feet, brokers said.

When the new 2.5 million square foot headquarters at 270 Park Ave. is completed, JPMorgan Chase will likely complete its tower at 383 Madison Ave. retained, but brokers say it could also keep space at 390 Madison and 277 Park that it leased during construction. A JPMC spokesperson said the new building is expected to open in late 2025.

“It features 2.5 million square feet of flexible and collaborative space that can easily adapt to the future of work,” said spokesman Michael Fusco.

Mitsui Fudosan America rented a floor at 527 Madison. Alan Schindler

Small financial tenants are also having difficulty finding high-quality space to rent in the Plaza District. Adam Henick, of Current Real Estate Advisors, said every building he requested for a client seeking 10,000 square feet by the end of the summer had either just been leased or had already been leased.

“The majority of the vacancies are at the base of the building, with poor light and air and no views,” Henick said.

Because of that need for speed, Lever House, at 390 Park Ave., is working on two pre-built 10,725-square-foot floors at a pricey $200 per foot. After the marketing space on the 12th floor of Lever House was snapped up by a tenant, they decided to build two more floors.

“Tenants didn’t have enough time (for renovations) and it helps to showcase the building,” said real estate agent Caroline Merck of CBRE.

Real estate agents say tenants are willing to pay for well-managed, well-located spaces. That’s why Mitsui Fudosan America, after quickly leasing a turnkey floor at 527 Madison last year, can 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, the current private space at Edward J. Minskoff Equities’ 590 Madison on 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 asking rents ranging from $106 to $120 per foot.

“While the old real estate mantra was ‘Location, location, location,'” said CBRE’s Peter Turchin, “it evolved into ‘New construction, new construction, new construction.’ Now it’s also ‘Location, renovation, amenities.’”





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