Why NYC companies are betting on big office space

Jumbo city tenants are looking far into the future and not the pandemic past by exploring options and committing to new spaces.

Inking deals at $200 per foot has become the old $100 per foot, while $300 per foot has been achieved at both One Vanderbilt and L+L Holding’s 425 Park Ave. which officially opens today.

“New buildings are the clear winners and the pricing hasn’t been an obstacle to leasing,” said Michael Cohen, president of Colliers Tri-State Region.

According to Mitti Liebersohn, chairman of New York brokerage Savills, 16 deals over 100,000 square feet were closed in Q3 compared to 11 deals in Q2. With 25 million square feet signed already, 2022 will surpass last year’s 26 million square feet of leases.

Recent large commitments to new buildings include KPMG and D. E. Shaw which leased 456,000 square feet and 283,421 square feet, respectively, both at Brookfield’s upcoming Two Manhattan West.

Exterior of One Vanderbilt.
A $300-per-foot deal has been achieved at One Vanderbilt.
Paul Martinka

Franklin Templeton inked a deal for 347,000 square feet on the high floors of SL Green Realty Corp.’s upcoming reinvention of One Madison Ave. at a reported $145 per square foot in a project that already snagged IBM for 328,000 square feet and Chelsea Piers Fitness for 56,000 square feet.

“About five years out there are several million-foot tenants that need to start talking about it now, and if the whole flight to quality theme continues, there won’t be a lot out there,” said Ted Koltis, EVP of Moinian Group.

To wit, on the east side of Grand Central Terminal, TF Cornerstone is planning a jumbo 2 million-square-foot tower at 175 Park Ave. with offices and a Hyatt brand hotel. Brokers say Blackstone is contemplating 1 million square feet of its glass and steel space.

Rendered interior of Penn 1.
Company owners know that work from home won’t last, and
they’re seeking prime office spaces in buildings like
Penn 1.
Vornado Realty Trust

Vornado’s buildings by Penn Station have been snagging tenants with 300,000 square feet leased at Penn 1 alone. Blue Cross Blue Shield has recently moved into its new 70,000 square feet of offices designed by Gensler.

Bloomberg has leases rolling in 2029 at its namesake tower at 731 Lexington Ave. and you can bet that owner, Steve Roth’s Vornado Realty Trust, is courting them for the replacement tower at the Hotel Pennsylvania, Penn 15.

Apple is also seeking 1 million square feet and as Vornado’s ever-growing tenant at Penn 11, is another candidate for Penn 15.

Exterior of Penn 1.
Class A office space at new towers like Penn 1 are seeing strong demand and achieving top-dollar leases, leaving older, less desirable buildings in the lurch.
Vornado Realty Trust

The lawyers of Freshfields Bruckhaus Deringer US will expand to 179,724 square feet at Silverstein Properties’ 3 World Trade Center and is one of several deals done at the WTC buildings.

“It’s a nice headline to see these transactions taking place,” said Jeff Peck, vice chairman at Savills, “but the subtext is who is going to absorb the spaces they’re leaving?”

Older buildings without amenities are going to struggle to keep tenants, said Gregg Cohen, a partner with Cresa, who added, “There is increased competition.”

Exterior of Penn 2.
Penn 2 is likewise landing pricey leases.
Vornado Realty Trust

To make a good first impression, RXR’s lobbies no longer sport six-foot apart floor stickers. “For people who have been out of the office for a couple of years, it’s like the first day of school,” said EVP Bill Elder. When evaluating space, environmental and sustainability issues are also important, said Josh Kuriloff, executive vice chair of Cushman & Wakefield.

Keeping and attracting tenants is putting downward pressure on rents at older, mid-block side-street properties. Some have rents in the low and high $30s per foot.

That’s good news for small companies, service professionals and non-profits that can’t afford to glam it up. But it could be the death knell for owners with high loan-to-value, low-interest debt when it comes time to refinance.

“Mid-tier tenants in a mid-tier building are not so quick to renew, relocate or make a deal — and will cause real pain to these Class B minus buildings,” said Peck.

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