Manhattan’s office towers are a tale of the haves and the have-nots

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When the mayor and other senior officials gathered a year ago to cut the ribbon of One Vanderbilt, one of Manhattan’s latest and most advanced office towers, it raises existential questions about the future of such buildings. The festival was spoiled by the pandemic.

However, One Vanderbilt is currently leased over 90%. Its latest tenant is UiPath, a robot software company that signed a 15-year lease last month to acquire the entire 60th floor.

Mark Holiday, CEO of SL Green, the developer of One Vanderbilt and the landlord of New York’s largest office, said, “I wish I had another 20th floor so I could rent it.” Said in a loud voice.

Marc Holliday, Chairman and CEO of SL Green Realty Corp, stands on the 54th floor of the 77-story One Vanderbilt office tower © Mike Segar / Reuters

Another Manhattan office building, a few blocks away, was suffering from another fate. 850 Third Avenue, a glass and steel building that opened in 1960, is almost half empty, and its owner, Chetrit Group, has been struggling to avoid foreclosures after lagging behind mortgages. rice field.

The fateful differences between these towers tell a lot about the world’s largest office market after an 18-month pandemic. The most popular buildings can be brand new, like One Vanderbilt, or newly refurbished, like Google’s $ 2.1 billion St John’s Terminal. While suffering from a large inventory of old towers in the city, it still attracts tenants and gets the best rent.

Ruth Colp Harbor, Chief Executive Officer of the company, said: Wharton property to advise tenants.

Its dynamics are reflected in the data collected by CBRE, a commercial real estate company that categorizes the 844 Manhattan office buildings it tracks into two categories: “better” and “commercialized.” The former enjoyed higher rents and lower vacancies, and found that less space was dumped into the sublease market over the last two years.

850 Third Avenue is almost half free with its owner, Chetrit Group, and struggles to avoid foreclosure © Jeenah Moon / Bloomberg

“The last six months of leasing have shown evidence of great success when new and in the right place, many of which are above pre-pandemic levels,” said CBRE Vice-Chair. Said Paul Amrich. Meanwhile, other buildings are plagued by poor location, low ceilings, small windows, and other imperfections, which “may be out of date,” Amrich warned.

Or, Craig Deitelzweig, CEO of Marx Realty, said: .. .. Everyone wants a Google office. “

As the pandemic prolongs and companies struggle to get their employees back to their desks, that belief can lead many real estate executives to disrupt New York office buildings across generations and change the city itself. I expect that there will be.

They have hundreds of millions of owners to “relocate” old buildings with features that were popularized by West Coast tech companies and are now defeated, as Marx and others did. I believe we need to quickly decide if we are ready to invest the dollar rigueur.

Some may forget it and decide that they can get it done at a lower rent. Others, especially highly utilized owners, may be forced to sell.

“Many new buildings will be seen in the next decade,” said Michael Cohen, president of the commercial real estate company Koreas’ New York area, saying that many landlords in Midtown have “inserted a demolition clause.” I predicted. If they choose to do so, on a lease to make it easier to demolish the building. ” “Capital goes around the city looking for opportunities,” he said.

A person stands in the “affinity” space where the silver balloons of the Summit One Vanderbilt Observatory float © Justin Lane / EPA-EFE / Shutterstock

The move to renew office stocks in New York was well ahead of the coronavirus. Office decisions, once determined by being close to the CEO’s residence, should instead be dominated by the need to attract talented young workers who can easily join investment banks and tech companies. I was encouraged by the idea.

The pandemic is accelerating that change. The economic crisis has wiped out some tenants in smaller buildings and prompted them to shrink. Others, on the other hand, take advantage of the rare opportunity to jump to a tower with more cash in favorable conditions to further hollow out weaker buildings.

Next, there are amenities. Covid-19 requires “wellness” items such as purified air and access to the garden. Not an option. It also poses the once distant threat of remote work. To bring workers back to the office, many companies accept the idea that their space must be more attractive than home offices and Starbucks.

“Today, top-notch buildings are expected to have conference facilities, cafes, city halls, specific wellness function rooms, gyms, studios, travel showers and bike rooms. The list is growing.” Says Holiday. He may also have added a music studio where employees can play musical instruments and decompress.

The $ 3.3 billion One Vanderbilt Tower to the left of MetLife’s office gives commuters direct access to the subway without leaving the building © Gary Hershorn / Getty Images

The $ 3.3 billion One Vanderbilt is full of such products. The 1,400-foot tower above Grand Central Station gives commuters direct access to the subway without leaving the building. Among its eateries is the new 11,000-square-foot restaurant by chef Daniel Boulud.

Not everyone is ready to compete with One Vanderbilt. Jeffrey Gural, New York’s second-generation developer who saw the boom and bust, is skeptical of the arms race for amenities. “Google in the world is on another planet,” he added, “not everyone can pay $ 100 per square foot.”

Even with Covid-19 and remotework, Gural believes there is a small tenant market, and its historic features isolate pre-war buildings built in the 1920s and 1930s. I’m expecting. But he admitted: “Maybe old glass buildings built in the 1960s and 70s will suffer.”

Office towers of that generation thrived in Midtown when financial companies fled downtown after World War II. Many showed their age before the pandemic occurred.

According to Colliers, demand for office rents in Midtown has fallen for the fifth straight quarter. These have fallen by 8.2% since March 2020, when the city of New York was blocked by a pandemic. In addition, landlords must use additional sweeteners, such as unusually generous tenant improvement allowances.

Dan Shannon, a partner at MdeAS, an architectural firm specializing in relocation, has faded towers along Third Avenue, such as Chetritville, which lacks the fame of its more central competitors on Park Avenue and Madison Avenue. Says his phone is ringing in the inquiry about. He argued that the relocation was faster than the new construction and was less constrained by the cumbersome zoning method. Well done, it has the promise of blending the best of the old and the new.

“They definitely have to be more attractive,” Shannon said of the building. “They need to stand in front of it.”

Some of these Third Avenue Towers will be revived or used for other purposes, but Darwin’s cancellation of Manhattan real estate suggests that not all will survive.

“In such a cycle, the bottom 10, 15, and 20% of inventories will be under pressure, which will rock,” said Holiday. “There are buildings that have been demolished and give way to new construction.”

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