Despite a slow 2023, the office rental industry came back to life in the fourth quarter with the year's largest deal completion.
Law firms led the charge by signing large leases after Labor Day.
Davis Polk renewed RXR's lease at 450 Lexington Avenue, expanding it to 630,000 square feet. Paul Weiss is moving from 1285 Sixth to Fisher Brothers' 1345 Sixth location, expanding to 765,000 square feet and adding $120 million in new equipment. Quinn Emanuel will leave 51 Madison Avenue and own a 132,000-square-foot property at 295 Fifth Avenue following a $350 million redevelopment. The company's spinoff, Serendi Gay Ellsberg, also expanded, signing a direct lease for 101,000 square feet at 1290 Sixth Avenue in Vornado. King & Spalding will move from nearby 1185 Sixth Avenue and join the firm in 175,000 square feet.
Regardless of industry, all tenants are looking for the same thing. “Location and access to transportation rose to the top of the list of criteria,” said CBRE's Chris Collinette.
That's why Park Avenue, north of 46th Street and the Grand Central neighborhood are “bright spots in a dying neighborhood,” added David Hoffman of Cushman & Wakefield. Example: MetLife renovated its eponymous tower at 200 Block Avenue Park and expanded it to 400,000 people. This tower is located atop Grand Central and currently serves LIRR passengers. But there is still significant vacancy in Class A buildings outside of the new Sweet Spot. His 750,000 square foot property at RXR and SL Green's 5 Times Square features luxury amenities and LED signage.
Commuters to Hudson Yards can hop on the 7 train, making it easy for Wells Fargo employees to move from 150 East 42nd Street to the newly purchased 300,000-square-foot site at 20 Hudson. (The company already owns 500,000 square feet at 30 Hudson Yards).
Fresh space is equally important for tenants. So Hudson Yards, Manhattan West, the Farley Building above the new Moynihan Station, Morgan North, and the area around Penn Station are all being completely reinvented.
On 7th Avenue, Vornado's Pen 2 is complete, and West 33rd Street will soon become a plaza. “I can feel this area changing, and the people of Vornado have done a good job of changing people's perceptions,” Mark Weiss said. A Cushman & Wakefield colleague will now lead Penn2's leasing efforts.
There is more leasing activity from companies facing lease expirations. For example, IBM and Franklin Templeton will move into SL Green's reinvention of One Madison in Nomad.
LinkedIn recently renovated and expanded the Empire State Building to 526,000 square feet.
“Instead of going to a brand new glass building and looking for the next floor, come to us.”
Anthony Malkin, Empire State Realty
Anthony Malkin of Empire State Realty Trust said such deals are thanks to the buildings' campus-like amenities, improved energy efficiency and indoor air quality. “Instead of going to a brand new glass building and looking for the next layer, come to us,” he said.
Prices for these prestigious trophy properties, especially in the Plaza District, reach $200 to $300 per square foot. Think One Vanderbilt, 550 Madison, 767 Fifth, 425 Park, and 9 W. 57th Street. In contrast, buildings without amenities struggle to find tenants for $30 to $80 per foot.
Gensler architect Robert Fuller said office and amenity design continues to be influenced by hospitality.
Baccarat has moved into Marx Realty's hospitable penthouse headquarters and showroom with terrace at 545 Madison Avenue, where they signed a brand agreement. The building's lounge will feature Baccarat chandeliers and barware.
“Rivian's house car will have the scent of Baccarat in it,” said Craig Deitelzweig of Marx Realty.
Mr. Marx plans to raise rents there and at 10 Grand Central Place, which includes a 150- to 200-seat City Hall space, a projection room, lounge, fireplace and even a spot for podcasting. There will be a floor of new equipment included.
“Is it worth it? Yes, it is,” Deitelzweig said. “It pays for itself.”
More amenities are being added to 9 W. 57th St., where owner Stefan Soloviev is undertaking a $45 million renovation. He is building an amenity center on his 27th floor with dining overlooking Central Park and space for his 150 people. The lower level has a full gym with a cold plunge pool and heated pool.
“The conference area, which can accommodate 150 people, was a tenant's suggestion,” Soloviev said. “We are listening to what our tenants want.”
Jeff Peck of Savills, whose clients are looking for 20,000 to 150,000 square feet, calls it “a flight to excitement.” “If we can turn something lackluster into something 'great', we can rent it out all day long,” Deitelzweig agreed.
To increase excitement in the Meatpacking District, Rolls-Royce will build a VIP experience center in a penthouse with a wraparound terrace in the historic 50 Ninth Avenue retail project and new office tower being developed by Tavros (hopefully). “People want to stay in the most dynamic neighborhoods, stay there, and stay in buildings with amenities for employees,” said Nicholas Silvers of Tavros (rents $200+ per person). We want to pay a premium for this.”
