It’s a tale of two cities. While ultra-luxury office towers in hot ’hoods are seeing massive asking rents of up to $300 per square foot, side-street buildings are lucky to rent for a mere tenth of those prices. On average, Manhattan asking rents are roughly $77 per foot, according to CBRE, but many basic office buildings are getting just $40.
“The momentum is only going one way,” said Ben Friedland of CBRE. “The financial firms are looking for every possible advantage and one is working together. So the mandate is for groups to be back in the office. That pent-up demand is coming into the market.”
That demand is for larger offices on higher floors. So rather than nabbing two, 20,000-square-foot floors, companies are leasing 40,000 square feet, said Friedland: “We are seeing fewer companies taking an adjacent floor and instead, they prefer to be on one larger floor.”
So many penthouse-level trophy offices are now leased that 80% of available space in Manhattan is now on lower floors, according to Benjamin Bass of JLL. Adding to the pressure, large tenants with leases ending between 2030 and 2032 are now out exploring the market.
“No one is developing any new product now and it’s tightening the market,” added Bill Elder of RXR, a large property owner. “There are many in the midst of LOI’s [letters of intent] or leases and others are just starting to look. The market will get some traction and it will create a little frenzy.”
At Vornado and Related’s 85 Tenth Ave., Google just renewed 300,000 square feet. At the same time, it’s putting up a similar amount for a short sublease at 345 Hudson St. as it congeals its occupancy along the West Side Highway and its new 550 Washington St. headquarters.
Luxury fashion conglomerate LVMH has already leased 150,000 square feet at 550 Madison Ave. — now it’s gobbling up another 150,000 square feet in the former IBM building at 590 Madison Ave. The building, which connects to a stunning trapezoidal atrium shared with Trump Tower, is being updated with a new amenity floor.
IBM recently decamped to new 270,000-square-foot offices at SL Green’s One Madison. Designed by Gensler, IBM’s massive 90,000-square-foot floors in the base of the structure are divided into “neighborhoods” for groups of about 25 to 30 people with outdoor spaces. There’s sit/stand desks, cafe-like spaces and tons of nooks and crannies — making each zone feel like a smaller workplace.
One Madison was also reconfigured with expansive floor-to-ceiling windows and outdoor terraces and has a new Chelsea Fitness in the base and multiple scattered food options designed by David Rockwell for chef Daniel Boulud.
Back in the Plaza District, Citadel will become the anchor and could eventually own the new 350 Park Ave. after it’s been demolished and rebuilt by Vornado and Rudin. In the meantime, it’s negotiating to move into several hundred thousand square feet at Brookfield’s revamped 660 Fifth Ave.
The inability to attract new college grads to outposts in Connecticut and New Jersey is also adding market pressure. It’s forcing companies to rethink their locations and even bifurcate.
“It’s the venture and private equity and high net worths,” says Brandon Charnas of Current Real Estate Advisors of the demand for trophy offices. “Such firms generally target Soho and the Meatpacking areas since the leadership and young employees are typically not tied down with partners or families, and want to be where the action is.’”
For instance, hedge-fund behemoth Bridgewater, now headquartered in Westport, Conn., has been seeking glass-and-steel locations in Manhattan for a satellite office, and is expected to lease the new 34,687-square-foot glass penthouse and terrace on the top two floors of the 710,000-square-foot 295 Fifth Ave. That building has been entirely reinvented by Tribeca Investment Group and is now ready for move-ins by firms like Quinn Emanuel.
Meanwhile, financial firm Jane Street is close to expanding to 1 million square feet at Brookfield Place, while American Express may leap across West Street to become the anchor tenant for Larry Silverstein’s 2 World Trade Center. Moody’s 20-year lease at 7 World Trade for 600,000 square feet ends in 2027 and brokers say it is currently weighing options.
In a move from Midtown, repped by Friedland and team, Senator Investment Group relocated from 510 Madison Ave. to 12,455 square feet on the 21st floor of the 22-story boutique Zero Irving, developed by RAL Properties on East 14th Street in Midtown South — at a pricey $170 per foot. The building has a roof deck for all tenants on top, while its base includes Civic Hall’s workforce development and digital skills training and a large food hall.
“Tenants saw it as an added benefit,” said Spencer Levine of RAL, the developer who was repped by JLL.
“Everything is about speed. Whoever can provide a faster move-in solution is more attractive to tenants.”
Sarah McCann of Vocom
To lure tenants that want fast move ins, many properties are also pre-building offices – usually 10,000 square feet or less — and sometimes providing the furniture. That’s because smaller tenants and the tech industry “vest bros” don’t have an in-house real estate expert and want the instant gratification of being leased and set up as effortlessly and as quickly as possible.
“For the vast majority of tenants, [leasing and moving] is a distraction and a headache,” said Jed Walentas, principal of Two Trees and chairman of the Real Estate Board of New York.
At the reinvented Refinery at Domino on the Brooklyn waterfront, Walentas is now constructing eight or nine pre-built offices on the lower floors as they get snapped up at asking rents in the $70s per foot. He’s also completing and furnishing a 30,000 pre-built on the full, top 12th floor, with an asking rent of $90 per foot.
“It makes the process much easier and simplifies the transaction,” Walentas said.
At the Empire State Building, the ownership (ESRT) has installed glass walls, with the option to add wiring, all the furniture, and it will even help the company move. That’s something consulting firm Capco took advantage of when it leased a 25,000-square-foot prebuilt office on the 68th floor.
“People pay more for each additional benefit,” said ESRT chief executive Anthony Malkin.
“Everything is about speed,” added Sarah McCann of Vocom, which oversees installations for clients including ESRT. “Whoever can provide a faster move-in solution is more attractive to tenants.”
Meanwhile, non-profits may not have the budget for trophy offices atop amenitized towers, but tax breaks put them in a sweet position as tenants.
After the Archdiocese of New York sells its 1011 First Ave. office building through CBRE, the church will move its offices to a 142,000-square-foot space in the base of the Feil Organization’s 24-story former Look Building at 488 Madison Ave. where it already operates a retail store opposite St. Patrick’s Cathedral.
Since the new, 30-plus year “synthetic” lease is considered a “sale,” the church won’t have to pay city real estate taxes and has a bargain rent of $45 per foot.
“While everyone might want to be in a Class A building with 360 views, they can’t all afford triple digit rents,” said Brian Feil, principal of the Feil Organization, noting that the one-time Look Building was refinanced for $100 million and is now 98% occupied. “We are low-levered and have the ability to transact and meet the market.”