Manhattan Office Leasing Hits Seven-Year Low
Commercial office leasing in Midtown has plummeted due to competition from elsewhere and political turmoil.
It seems, in all walks of life, shiny, new and sexy wins over revered, old and established. NYC office space is no exception.
The commercial building bonanza currently sweeping across parts of Manhattan resulted in more than 871,000 square feet leased last year in the sparkling new Hudson Yards district, still being completed on the far West Side, reported the Wall Street Journal. However, about 34 percent of new space committed in Hudson Yards so far will be occupied by tenants relocating from Midtown sub-markets. Throw in the political and economic turmoil caused by an election year, and 2016 represented the weakest year for office leasing in Manhattan since 2009, according to preliminary statistics from real estate services firm JLL.
Specifically, JLL reported that 27.3 million square feet of new leases and renewals were signed in 2016—the lowest since 2009’s 24.4 million.
“Clients would come to us and say, ‘If I don’t have to make a decision now, why not wait?’” said Tristan Ashby, director of JLL’s New York research.
Although all traditional sub-markets in Manhattan were hit, particularly effected was the venerable upper-tier office market in Midtown, with vacancies up to 11.8 percent from 10.4 percent the previous year. Tenants traded staid for the newly made or made-over. Major League Baseball signed a 400,000-square-foot lease at 1271 Avenue of the Americas, a skyscraper undergoing a large-scale makeover, said the Journal. Law firm Hogan Lovells completed a lease for more than 200,000 square feet at 390 Madison Avenue, which is undergoing a redevelopment by L&L Holding Company LLC.
Midtown Manhattan, it seems, is getting hit from all sides. EY, formerly known as Ernst & Young, had plans leaked in June to relocate as much as 170,000 square feet at 5 Times Square to the New Jersey waterfront. Their new space was reported in Crain’s to a space at 121 River Street, an office building in Hoboken. New Jersey has been pro-active in attracting tenants from across the Hudson. The NJ Grow Program, for instance, provides tenants with as much as $15,000 in tax credits for every employee they move to the state—a benefit that can add up to millions of dollars in tax savings, although it’s unclear if EY has applied for those tax breaks as of yet.
The Real Deal reported in August that Midtown has steadily been losing clients since 2011 to the tune of 5 million square feet. Brokerage Newmark Grubb Knight Frank calculated in the article that roughly 12 million square feet of new construction is set to come online in Manhattan in the next five years, much of it downtown and on the far West Side, which will further exacerbate the Midtown exodus. Among those heading for the hills, or at least other Manhattan districts is Time Warner (which is leaving its namesake building in Columbus Circle), white-shoe law firm Skadden, Arps, Meagher & Flom (which is packing up at 4 Times Square) and global advertising media firm GroupM (which is decamping from 498 Seventh Avenue.)
The soft market has led a number of older buildings to undergo radical revamps in order to complete with new buildings—while prices inevitably take a hit.
“The biggest value over time will be at the higher end,” JLL vice chairman Rob Martin told the Real Deal. “Buildings that rent north of $100 per foot, there has always been a limited demand, and there’s a lot more supply coming on. We’re already starting to see concession packages go up.”
“It’s a return to a tenant market,” he added. “It’s a great time to be a tenant.”
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