Big Tech Demand Drives Vornado’s Manhattan Office Momentum: Steve Roth

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Vornado Realty Trust’s office leasing activity in Manhattan is trending upward, aided by big expansion plans from tech giant tenants.

In its second-quarter earnings call Tuesday morning, the real estate investment trust reported that Facebook, Google, Apple and Amazon are all seeking more space in its Penn District campus as they ramp up hiring following surging revenues. Vornado Chairman and CEO Steven Roth said the increasing demand has prompted the REIT to raise asking rents in the Penn District, and he said he sees a strong, near-term future for Manhattan’s overall office sector as companies prep their return to offices this fall.

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“They believe in New York, they love the size of New York, the scale of New York, the ability to open up space and hire 3,000 engineers in one year,” Roth said during the investors call. “They love the education [here], and very importantly and interestingly, they love the diversity of the population.”

Roth gave an example of an increased demand for office space in a Fortune 100 company that was originally eyeing 300,000 square feet for 2,800 employees and is now requesting 400,000 square feet for the same workforce. He said Vornado’s New York City division is experiencing record incoming requests for proposals and tours that include many large companies who were on the sidelines during the height of the COVID-19 pandemic.

Manhattan-based Vornado signed 33 leases in the second quarter alone, totaling 322,00 square feet, with two-thirds deriving from new companies, according to Michael Franco, the REIT’s president and chief financial officer. The busy leasing quarter was highlighted by inking Empire HealthChoice for 70,000 square feet at its new 1 Penn Plaza office tower. 

Franco said there is a strong leasing pipeline with more than 1 million square feet in active negotiation, including 108,000 square feet at 85 10th Avenue. He said the majority of the interested tenants are from the financial, technology or advertising industries.

Office lease expirations for the rest of 2021 and 2022 are “very modest”, according to Franco, with 976,000 square feet expiring, which comprises 7 percent of its Manhattan portfolio.

Vornado has kept busy early in the third quarter, striking an agreement with the Canada Pension Plan Investment Board (which operates under CPP Investments) for a 100 percent stake in One Park Avenue that includes a $525 million commercial mortgage-backed securities (CMBS) refinance. Roth did not indicate possible new tenants on the earnings call for the 943,302-square-foot office asset, which is currently 67 percent anchored by the NYU Langone Medical Center

Roth, who said Manhattan’s office struggles may have already bottomed out during Vornado’s last quarterly earnings call in May, reiterated his bullish outlook Tuesday, because of many corporations planning to require employees to return to offices after Labor Day. He said remote-working options that have been in place for much of the pandemic will likely soon be ending as companies look for a return to pre-pandemic office culture.

“I’m gonna bet on the employers,” Roth said. “Different firms will do different things, but, basically, I believe in the office as the principal driver of commerce and I believe the office will continue to be the core of a business where creativity, decisions, etc., are made.”

– Andrew Coen can be reached at acoen@commercialobserver.com