Macklowe bets on lure of new
No wonder Harry Macklowe’s pulling out all the stops in his quest to build a 1,500-foot-tall office tower between East 51st and 52nd streets, where he refinanced three small parcels in his assemblage for $192 million last week.
Some “experts” think the city’s office market has more space than it needs, and too much new inventory such as Macklowe’s proposed skyscraper will cause a glut.
But multiple doom-and-gloom scenarios can’t faze the mighty Manhattan office market’s taste for newly built office giants, all of which are either full or on their way to being full.
Apocalyptic omens in recent weeks include JP Morgan Chase’s plan to move some employees out of town; WeWork’s near-collapse, which put millions of square feet potentially in limbo; and sagging demand and lower prices for office building purchases, which often reflect falling confidence in the market.
While data from the major brokerages suggest a more nuanced, mixed picture (higher availability, higher rents and increased dealmaking over 2018), I’d like to explore another barometer of long-term market health: the leasing frenzy at expensive, brand-new buildings.
You know — the ones that buildings even 20 years old don’t compare with, thanks to the new generation’s column-free floors, high ceilings, cogeneration facilities, advanced digital infrastructure and energy-efficient environmental features.
We tallied current occupancy and lease commitments at 11 major new, ground-up Manhattan office properties that either recently opened or will open soon.
Our sample covered the Durst Organization’s One World Trade Center; Larry Silverstein’s Three and Four World Trade Center; Related Cos.’ 10, 30 and 55 Hudson Yards; Brookfield’s One and Two Manhattan West; SL Green’s One Vanderbilt; and L&L Holding’s 390 Madison Ave. and 425 Park Ave., both of which are all-new despite including some old steel.
Of a total of 20.84 million square feet in all the projects, some 17.6 million square feet — or 84.5 percent — are either occupied by tenants or have signed leases to move there in the immediate future.
Sure, some of them enjoyed tax breaks and other subsidies that were passed on to tenants. But they had to overcome liabilities, too — such as One World Trade’s emotional baggage and politically compromised design, and resistance to moving from Midtown to the Far West Side.
Tenants drawn to them (including companies that bought floors as condo units) are a cross-section of the financial, media, tech and legal elite — among them, Condé Nast, Skadden, Carlyle Group, the NHL, TD Bank, Coach Inc., Group M, Point72, Warner Media and Spotify.
The 84.5 percent figure is the more impressive given that buildings with the most floors yet to be leased aren’t finished yet: One Vanderbilt, Two Manhattan West and 425 Park Ave. Prospective tenants are in talks with all three, and the buildings will likely be full or near-full by opening day.
The appetite for newly minted office space was reflected in deals signed last week. Uber inked a longawaited, 300,000square-foot lease at Three World Trade Center. Also, a new lease for Oak Hill Advisors and an expansion by Carlyle Group added 65,000 square feet of signed-for space at One Vanderbilt, upping the tower’s leased total to 65 percent a full year before it opens.
Our tally didn’t include 50 Hudson Yards, which won’t open until 2022, because its leasing situation’s fluid. Its 2.9 million square feet are 30 percent pre-leased to BlackRock. But a possible deal with Facebook — which sources say is likely to happen — would up the commitments there to around 70 percent. Nor did we include The Spiral, Tishman Speyer’s 65-story skyscraper across the street from Hudson Yards because it’s risen barely above the podium level. Pfizer is the anchor tenant and Alliance Bernstein has also signed on. But if we check out both projects a year from now, we’ll be surprised not to find them as full or near-full as the others. So it’s little surprise that Macklowe is confident that a $1 billion office tower rising to 1,500 feet in the heart of Midtown East won’t stand empty for long.