Midtown Madness: Leasing Still Sluggish in Manhattan’s Priciest Market
By Jotham Sederstrom April 2, 2013 7:00 am
reprintsBrokers and developers expressed confidence that demand will be sufficient to fuel the expansion of the Midtown office market to the West Side, where more than 16 million square feet will be built in coming years by developers including Sherwood Equities, Moinian Group, Brookfield (BN) Office Properties, Extell Development Co. and Related Companies.
Jay Cross, president of Related Hudson Yards, said the initial 1.7-million-square-foot tower—the first of the West Side projects to break ground—is attracting interest from “every sector” and that financial companies are “getting more active.” While the big banks and investment firms remain uncertain about making moves in the short term, he said, most of them currently occupy older buildings and are starting to make long-term plans to relocate to newer space, which will create demand for the West Side projects even if the banks are consolidating operations.
For a big financial company, moving “is like turning a super tanker,” he said. “It’s not inappropriate for them to begin thinking about where they’re going to be in five years.”
Related Hudson Yards’ first tower, scheduled to open in mid-2015, will be anchored by Coach Inc., which will own its space as a commercial condo. Related plans a total of six million square feet of office space in the mixed-use development, including a 2.4-million-square-foot office tower that won’t come online until 2018. A mixed-use building coming online in 2017 will include additional office space as well as hotel, residential and retail space and an Equinox gym.
“The large-block tenants—north of 300,000 square feet—are considering it,” said Jared Horowitz, executive director at Cushman & Wakefield (CWK). “Tenants that size typically do look out that far.”
Other planned developments at Hudson Yards include 2.5 million square feet of office space by Sherwood, 1.8 million square feet by Monian, 1.78 million square feet by Extell, and four million square feet by Brookfield, which has broken ground on the platform over the West Side rails for its project.
While those offices are likely to find tenants, some brokers said, the bigger issue is who will rent the spaces that are vacated in the westward migration. Some speculated that the planned conversion of the Sony Building at 55th Street and Madison Avenue to hotel and residential use will be the start of a Midtown trend, similar to the transformation older office buildings have undergone in the Financial District.
One rumored candidate for conversion is 650 Madison Avenue. That property is being marketed by Eastdil Secured, which brokered the sale of the Sony Building for $1.1 billion to developer Joseph Chetrit. Eastdil didn’t respond to a request for comment.
Still, some brokers said the financial companies may be on the verge of jumping back into the market for more space, which would help reduce vacancies in the Rockefeller Center/Avenue of the Americas area and in the expensive Plaza district.
“We’re all optimistic,” JLL’s Mr. Riguardi said. The improving stock market and business climate suggests that companies may soon increase spending on technology and hiring, he said.
“Activity is slowly picking up,” Mr. Horowitz said. Once the market is cleared of cheaper sublease space, direct leasing is likely to pick up, eventually leading to increasing rents.
He even sees potential demand for space with asking rents in excess of $100, at properties including 650 Madison Avenue, where C&W is the leasing agent.
“We’re seeing activity from brokers representing financial institutions,” Mr. Horowitz said. “The rents aren’t scaring them.”
