NEW LEASE ON LIFE
Tenants hunt for office space in upgraded buildings and nontraditional neighborhoods
OFFICE leasing in the city remains balanced with healthy concessions but good rents. Large tenants continue to firm up new locations, while smaller ones are actively making deals for a plethora of sizes, shapes and terms. Geography is less focused as tenants seriously consider space in all neighborhoods.
Lower Manhattan is continuing to attract diverse firms. “The initial primary motivator was price, and now the decisions are being made because of the neighborhood,” says John Wheeler, managing director of JLL.
Many companies are also exploring Brooklyn. “It’s all about attracting and retaining good talent,” says Mitti Liebersohn, president of NYC operations for Avison Young. “And they are looking at the amenities.”
Pre-built office spaces are offered everywhere. But now these ready-tomove-in offices can be leased for shorter terms. Firms are also taking a larger role in the redesigns of their next offices. While plenty opt for an open plan design, they’re carving out private areas like “phone booths” and mini meeting spaces as well as open pantries for coworker collaborations.
And regardless of neighborhood, outdoor areas remain coveted. McKinsey & Company, for one, has snagged a terrace on the 60th floor of Silverstein Properties’ new 3 World Trade Center as part of a 200,000-square-foot lease. Meanwhile, the office building owned by Mitsui Fudosan America at 527 Madison Ave. has a 10th-floor terrace that’s open to tenants by day and also available for events.
Mitsui is also an investor, with Related Companies, in both 50 and 55 Hudson Yards. “We are very bullish on the submarket [in that area], and the leases that were signed at 55 Hudson Yards are great evidence of that,” says Mitsui’s Keith Purcell, vice president of leasing.
And while deals Downtown and on the Far West Side — like McKinsey’s at 3 WTC, Ernst & Young’s for 600,000 square feet at One Manhattan West, and the yetto-be-officially-signed pact Pfizer has for 800,000 square feet at the Spiral by Hudson Yards — have some people concerned that Midtown will be left with empty buildings, experts say the transition to western and southern locations is not that significant.
“You hear all the worrywarts say that all the users are going to Hudson Yards and will leave enormous vacancies, but even if it’s 20 million square feet, it is just 5 percent of the market,” says Norman Sturner, chief executive of Murray Hill Properties.
In addition, the rezoning of the Midtown East corridor is providing opportunities to reinvigorate that neighborhood. Properties in the redevelopment pipeline include the current Pfizer headquarters at 219 and 235 E. 42nd St. by Second Avenue.
But Sturner cautions that investors can’t overpay for buildings and expect to get top-dollar rents for new leases without having the capital to pay upfront for new tenant installations and for building upgrades.
“Even in the midst of euphoria, you can’t go off half-cocked and say all ships will rise,” warns Sturner. “You need to be capitalized to stay there.”
Owners who do have capital are spending it on invigorating lobbies, speeding up elevators and creating larger windows to achieve signed deals at higher rents.
“Some owners don’t think they need to spend the money, and they are seeing a lag in leasing,” says Paul Amrich, vice chairman of CBRE, who often advises such changes.
JLL recommended Joseph Moinian to tweak his proposed 3 Hudson Boulevard with the larger floorplates and private lobbies now coveted by corporations.
“Activity is still very brisk, and a lot of this is because the tech tenants are buoying the market,” says Peter Riguardi, president of JLL’s tristate operations. “We are optimistic about the activity.”
Other owners, like HSP Real Estate Group and the Kaufman Organization, are also prioritizing capital expenditures — i.e., money for improvements — and are reaping the benefits when it comes to signing new leases.
HSP is turning a former recording studio at 251 W. 30th St. near Madison Square Garden into “a much more sophisticated building” with a new institutional quality lobby and elevators, spiffier bathrooms, an amenity center plus pre-built offices, says Gerard “Jerry” Nocera.
“We made it institutional,” explains Nocera, principal of the newly formed HSP Real Estate Group, a merger of Herald Square Properties and Evo Real Estate. The changes are paying off, with multiple tenant tours and leases in the works at rents in the $50s and $60s per square foot.