When NYC Office Tenants Move Only a Block or Two

A shift is afoot in the New York City commercial real estate market that might seem familiar. More companies are seeking to relocate very near the offices they have long occupied. Oftentimes, it looks like it’s only a matter of a block or three.

The evidence so far is largely anecdotal. But one New York City real estate veteran estimates that well over half the leasing done recently by his team involved companies staying in the same neighborhoods where they were already conducting business. This flies in the face of the long-held notion of a “borderless” city, where companies can relocate anywhere in Manhattan or even beyond.

“Generally speaking, the answer is yes,” said James Wenk, a vice chairman with the brokerage Savills. “Companies, if they are relocating, will generally stay in the same proximity of their existing location, obviously subject to availability, subject to the right inventory being available that that specific tenant is seeking.”

Some two-thirds of deals over the last 12 to 18 months that Wenk and his team have done have been “generally in the same submarket,” he said.

Looking deal by deal, a smattering of recent office leases have tenants staying very close to their former addresses. For example, Virtus Investment Partners, a partnership of boutique investment managers, decided at the end of July to relocate from 31 West 52nd Street to about 41,000 square feet less than a block away at 1301 Avenue of the Americas — essentially moving from just east of Avenue of the Americas to just west of it.

Also in July, Phipps Houses, a nonprofit developer of affordable housing, took 39,000 square feet at 257 Park Avenue South, heralding a move from 902 Broadway about a block away. And French advertising tech firm Equativ agreed to take about 24,500 square feet at 1350 Broadway, just over a block east from its current digs at 498 Seventh Avenue.

In June, law firm Ropers Majeski signed an 11,000-square-foot lease that will take it three blocks north from 750 Third Avenue to 800 Third. In August, another law firm, Edelman & Edelman, agreed to move two blocks to the southeast in Lower Manhattan, from 61 Broadway to 60 Broad Street. 

“What I see happening is tenants who like their location, if they can find comparable space, will stay in their areas,” said Peter Turchin, a vice chairman at CBRE (CBRE) who has been designated a top leasing broker there by CoStar every year since 2004. “If they don’t like their area, they will relocate to a different area.”

The tendency is yet another nuance in a New York office market that has taken hits from the pandemic and its lockdowns. Technological advancement that allowed a large part of the workforce to work from home or a remote location at least part of the week has turned even some Class A office towers partly, if not wholly, superfluous. Earlier this month, Commercial Observer broke the news that RXR and SL Green, two of the city’s most prominent office owners, were weighing whether to convert part of 5 Times Square, a 39-story tower near the heart of the bustling spot, into apartments.

And it comes on the heels of the notion of a “borderless” market, where companies can take advantage of lower rents, say, in Lower Manhattan or even Downtown Brooklyn, rather than be stuck in such high-priced areas as the Plaza District and Park Avenue close to Grand Central Terminal.

Another factor has been the so-called flight to quality, with companies flocking to newer, more amenitized spaces in One Vanderbilt, Hudson Yards and the next-door Manhattan West, as well as to the classic — and often recently updated — towers along Avenue of the Americas (aka Sixth Avenue) in the West 50s, including Rockefeller Center. These projects have the sort of technology and finishes, never mind convenient commuting connections, to be able to charge premium rents.

“The most interesting thing is that those are also the areas that have the highest levels of capital investment,” Turchin said. “If you walk up and down Park Avenue or Sixth Avenue, almost every one of those buildings has had a lot of capital invested. What building on Park Avenue hasn’t had a renovation?”

These factors mean that the city’s office market is bending away from a trend that once defined it — or, to put it another way, is reaching back to the past to define its future. 

“For years, the market had these unofficial boundaries where certain industries and certain tenants stayed within their neighborhoods, like Madison Avenue for advertising, banks for the Financial District, and the West 30s for garment and fashion,” said Franklin Wallach, executive managing director for research and business development at Colliers (CIGI), who also agreed that hedge funds and other boutique financials made a neighborhood out of the Plaza District and the stretch of Park just north of Grand Central. “It’s never 100 percent, but the city really changed in the wake of Conde Nast’s move down to the [World] Trade Center. That was a moment of ‘Wow, this fashion/media/publishing company went from Midtown down to Lower Manhattan.’ In the wake of that, millions of square feet of tenants migrated from Midtown to Downtown, from Downtown to Midtown, Midtown to Midtown South.” 

A few tenants even went to Brooklyn or Long Island City in Queens, awakening a notion that companies needed to be closer to where people lived. (Conde Nast signed its lease at 1 World Trade in 2011, though it’s since reduced its space there significantly.)

But things like commuting patterns proved to be a lot more baked in. A company that draws most of its workforce from the Bronx or the northern suburbs is unlikely to want to stray too far from Grand Central, which serves mainly commuters from those places, especially these days when it might be difficult to get workers who have the option of working from home to commute to the office. Employee recruitment and retention still drives the bus for many companies.

“The biggest topic with location right now has to do with commutation,” said Kevin Kelly, a vice chairman at Cushman & Wakefield, who said he and his team help tenants make location decisions. “If I go back in a time machine, pre-pandemic, when we were thinking about where a company would locate, and we knew it had a huge [concern] about employee preference, we were oftentimes thinking about it in the context of ‘Will this location help us attract and retain the best and the brightest?’ ”

With hybrid work and people working more from home, “what’s occurred is that location has a major influence on the frequency with which employees are coming into the office,” Kelly said.

Other factors that could cause a company to look askance about moving to another area might include where similar companies are located, the better to poach workers it covets, and where companies that service and supply it are located, brokers said.

Another factor that helped traditional Midtown maintain its attraction, and its rents, is the advent of East Side Access, the long-awaited direct connection between the Long Island Rail Road and Grand Central, which opened in early 2023 — and opened up a whole new vista for companies trying to recruit Long Islanders to their staffs.

But the One Vanderbilts and the Hudson Yards of Manhattan are rapidly filling. “We don’t have any new buildings going up right now,” Turchin said. “So people are kind of stuck.”

Best to stick close to home.