NYC NewTrends

Research
JANUARY 2016
NYC NewTrends
MIDTOWN’S PENT-UP SUPPLY
WHO IS LEAVING BEHIND LARGE BLOCKS AND HOW WILL IT IMPACT THE MARKET?
2016 represents a different kind of market peak. The Midtown availability rate is nearly four percentage
points higher than in 2007, and that delta is not likely to narrow between now and 2020, as the city inventory
expands, and more office blocks of space become available. In 2007, Newmark Grubb Knight Frank was
tracking 50 available large blocks (100,000+ square feet) of institutional quality space in Midtown that were
either on the market for lease or set to become vacant within the next several years. Today, Newmark Grubb
Knight Frank is tracking more than 80.
CENTRAL PARK
60 Columbus
110 E. 60th
9 W. 57th
57TH STREET
Current Availability
and Future Occupancy
1601 Broadway
1221 Sixth
1211 Sixth
1185 Sixth
1166 Sixth
1501 Broadway
1155 Sixth
1095 Sixth
11 Times Sq.
299 Park
575 Fifth
55 W. 46th
530 Fifth
1440 Broadway
114 W. 41st
1114 Sixth
1100 Sixth
5 Bryant
7 Bryant
277 Park
390 Madison
485 Lexington
350 Madison
1133 Sixth
4 Times Sq.
42ND STREET
430 Park
425 Park
1345 Sixth 10 E. 53rd
399 Park
825 Seventh
1325 Sixth
601 Lexington
1675 Broadway
31 W. 52nd 375 Park
1301 Sixth
575 Lexington
75 Rockefeller
1633 Broadway
1271 Sixth
135 W. 50th
300 Park
FIFTH AVENUE
Future Occupancy
65 E. 55th
NINTH AVENUE
Current Availability
135 E. 57th
237 Park
200 Park
335 Madison
One Vanderbilt
405 Lexington
220 E. 42nd
622 Third
222 E. 41st
285 Madison
90 Park
605 Third
498 Seventh
3 Hudson
34TH STREET
66 Hudson
330 W. 34th
50 Hudson
55 Hudson
450 W. 33rd
Manhattan West
One Penn
2 Herald Sq.
112 W. 34th
THIRD AVENUE
Blocks Listed
are 100,000 SF
and Greater
750 Lexington
One Park
Research
JANUARY 2016
NYC NewTrends
If we take a snapshot of the Midtown office market right now with an eye to
With 69.5% of space left to lease in the new developments that are set to
the not-too-distant future, it's hard not to be aware of the significant amount
deliver between now and the early 2020s, odds are good that additional
of space that has recently or will soon come to market. There are at least 12
tenants will be pulled from traditional Midtown corridors, as Midtown
previously built Class A office buildings that already are, or in the next five
South and Downtown have thus far accounted for a very small amount
years will become, more than 75% vacant due to relocations west and south.
of the pre-leasing.
While commercial real estate is a constant game of musical chairs, the
Relocations to Existing Buildings Create Additional Backlog
significant movement to new construction is a different variable, last seen in
In addition to space in newly constructed buildings, large blocks in Midtown
Tech &
abundance during the 1980s.
South and Lower Manhattan have
been backfilled by Midtown tenants
Creative
Nonrelocating south such as Jones Day, Time, Inc., Hudson’s Bay, Sony,
profit
Manhattan Office Development (MSF)
Twitter, William Morris Endeavor, OSP, The College Board, Banco
75
Santander, Harper Collins and Revlon. Along with the standard yearly
market roll, the presence of additional blocks from the migration to new
50
63.0
25
34.7
FIRE
52.7
product has combined to form a backlog of available space that will outpace
57.3
10.1
0
18.1
22.1
the norm. For tenants that relocated Downtown, paying rent in the $40/PSF
14.4
to $60/PSF range as opposed to the $70/PSF to $90/PSF range had to
1950s 1960s 1970s 1980s 1990s 2000s 2010s 2020TBD
factor into their decision. Class A asking rents in Downtown Manhattan have
increased 34.8% in the past three years, but remain 27.7% below the
* 2000’s built SF offset by DT residential conversions and 9/11
Midtown average. Downtown has re-emerged as a flight to quality and value.
Inventory Expansion Occurring in Manhattan
Western Midtown Submarkets Will Be Challenged
Inventory may increase by as much as 5.5% in the coming decade, as
A spike in availability is expected to occur in the Sixth Avenue submarket
Manhattan’s office construction pipeline totals more than 25 million square
over the next several years where we are tracking 17 buildings with large
feet. At least half is scheduled to be completed in the next five years, with
blocks of space that total approximately 10 million square feet. Several
much of the development occurring Downtown and along the Far West Side.
opportunities are present, beginning at Bryant Park, where HBO will vacate
Pre-leased space comprises 30.5% of the inventory expected to be built in
space at 1100 and 1114 Sixth Avenue, through 54th Street, where Warner
the next five years, leaving approximately 3.8 million square feet of space
Brothers is decamping to relocate four avenues west to Hudson Yards.
that will be made available for occupancy once those tenants vacate to their
1100, 1114, 1155, 1166, 1185, 1271 and 1325 Sixth Avenue all have current
new office towers (see table below).
large availabilities, or are expected to in the near future. Additional large
Companies like Time Warner, Conde Nast, L’Oreal and KKR are
block opportunities for lease within a half avenue from Sixth include 55 West
relinquishing contiguous blocks of space in prestigious buildings throughout
46th Street, 135 West 50th Street, 31 West 52nd Street, 75 Rockefeller Plaza
Midtown’s more traditional submarkets and decamping to new product.
and 9 West 57th Street.
SIGNIFICANT RELOCATIONS FROM MIDTOWN
FAR WEST SIDE
LOWER MANHATTAN
SF
Leased
Building
Relocating To
Submarket
Vacating
Tenant
1,400,000
30 Hudson
Westside
Condè Nast
Coach
750,000
10 Hudson
Far West Side
GroupM
Skadden Arps
538,000
Manhattan West
Times Square
Time, Inc.
L’Oreal
402,000
10 Hudson
Grand Central
Hudson’s Bay Company
Wells Fargo
400,000
30 Hudson
Multiple
Jones Day
KKR & Co. L.P.
286,000
30 Hudson
Plaza
Associated Press
SAP
115,000
10 Hudson
Multiple
The College Board
VaynerMedia
90,000
10 Hudson
Flatiron
Boies, Schiller & Flexner
81,000
55 Hudson
Eastside
Tenant
Time Warner
2
SF
Leased
Building
Relocating To
Submarket
Vacating
1,100,000
1 World Trade
Times Square
800,000
3 World Trade
Times Sq. So.
670,000
225 Liberty
Sixth Avenue
400,000
225 Liberty, 250 Vesey
Plaza
330,000
250 Vesey
Grand Central
172,000
200 Liberty
Far West Side
145,000
250 Vesey
Westside
Media Math
131,000
4 World Trade
Multiple
SportsNet New York
90,000
4 World Trade
Sixth Avenue
Research
JANUARY 2016
NYC NewTrends
Will Blocks Lease; Will Blocks Linger?
Number of 100,000 SF (+) Potential Blocks of Space
Every property is different. Some blocks will rent; others some may sit
100
vacant for an extended period of time. Buildings that are in amenity-laden
75
85
50
50
25
areas such as Bryant Park, have modern infrastructures or hold a certain
62
cachet will continue to catch the attention of corporate decision makers.
Certainly, space that is considered special, i.e., boosts park views, high
ceiling heights, terraces as so on, will continue to lease. But what about the
0
2007
2010
2015
rest? Average Midtown buildings looking to attract tenants over the next
several years have to be flexible and creative. Landlords will have to adapt
buildings to a changing world. Employment space has increased in density,
as the amount of square feet per employee is dropping for tenants of all
Can TAMI Fill the Seats?
industries. Companies are choosing to have more cubicles and benches and
While several Midtown corridors are facing upcoming vacancies, landlords
fewer offices. Build-outs have trended towards maximizing space for
have begun to adjust assets in an attempt to attract rapidly expanding TAMI
amenities. Large offices and file libraries are being replaced by cooperative
(Technology, Advertising, Media, Information) tenants from the increasingly
break-out rooms and coffee bars. Certain industries reserve more usable
narrow confines of Midtown South. TAMI tenants have focused traditionally
square feet to provide amenities to employees as means of motivation and
on Midtown South, which has many side-core buildings that sometimes
relaxation. Among all industries, technology, media and entertainment
present better opportunities for open-seated floor plans, as opposed to
tenants dedicate the highest percentage of their space to amenities, more
Midtown, which contains many center-core assets that can be conducive to
than 10% of occupancy. Some combination of fitness/wellness centers,
large, private offices. However, several high-profile tech and creative tenants
conference/training rooms, food service areas and meeting space are being
migrated north and west in 2015 to take advantage of the larger floor plates
smartly considered to cater to collaborative workforces.
and often less competitive rents in Midtown. TAMI tenants have been active
With an aging office stock that currently is 75 years old, the largest CBD in
in the Far West Side submarket, where the development activity at Hudson
the country needs to that is to develop new, upgrade old, and convert
Yards has attracted large creative firms like R/GA and VaynerMedia. TAMI
obsolete buildings. Some building owners planning to market large amounts
employment in New York City is up 5.4% over the past year, dramatically
of available space in the coming years have begun taking measures to
surpassing the growth rate of the financial industry. Landlords targeting
reposition assets, including: assigning a new property name (5 Manhattan
technology/media/creative tenants are adopting modern amenities aimed to
West), reaching for non-traditional office occupying industries (220 East
please millennials, the core of the industry's employment base. TAMI tenants
42nd Street), offering distinctive amenities (gyms, pools, restaurants, yoga
have become quite favorable--as they survive, they expand, with 71% more
studios, employee lounges, usable roof decks, conference centers and game
expansions last year than in 2014.
rooms), approving lobby renovations and/or infrastructure changes (1271
Avenue of the Americas, 399 Park Avenue, 605 Third Avenue, 575 Fifth
Avenue, 237 Park Avenue, 1155 Avenue of the Americas and 12 East 49th
Street), as well as completely reimagining their structures (390 Madison
Expected Blocks of Space (SF) by Delivery (New Construction)
and Occupancy Date (Relocation Committed Tenants)
Avenue and 425 Park Avenue). Such a competitive market will require
landlords of large blocks to make hard choices necessary for upgrading their
10
assets and setting themselves apart.
MSF
8
7.7
6
4
2
6.6
4.2
2017
2018
5.5
0
2019
2020
3
Research
Newmark Grubb Knight Frank United States Office Locations
New York City
HEADQUARTERS
125 Park Avenue
New York, NY 10017
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Jonathan Mazur
Managing Director, Research
212-372-2154
[email protected]
Stephanie Jennings
Tri-State Director, Research
212-372-2099
[email protected]
David Chase
Senior Research Analyst
James Rorty
Senior GIS Analyst
Alex Schwartz
Research Analyst
Edward Son
Senior Research Analyst
Ronnie Wagner
Director, Research
Robert Zindman
Analyst, Research
Cover map source: NGKF Research, Alliance for Downtown New York
Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has been
revised. With this expansion and refinement in our data, there may be adjustments in historical statistics
including availability, asking rents, absorption and effective rents.
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