Posted Feb 7, 2022, 7:54 PM
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New Yorker for life
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Join Date: Jul 2001
Location: Borough of Jersey
Posts: 56,617
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What's driving the wave of new office construction....
https://www.crainsnewyork.com/commercial...eckoning-older-buildings-get-left-behind
Manhattan offices face reckoning as older buildings get left behind
February 7, 2022
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The fortunes of Manhattan’s office market are coming down to old versus new.
Glassy skyscrapers that have popped up in recent years are luring companies seeking new space and preparing for the hybrid-work era, a sign of New York’s revival from the depths of the pandemic. Left behind are countless older buildings that haven’t been modernized in the past decade, presenting a costly problem for landlords.
The question for owners of those buildings is whether it’s worth pouring hundreds of millions of dollars into a full gut-renovation—a gamble at a time when office use is down in general, available space is piling up at a record rate and high-profile companies such as Deutsche Bank AG and HSBC Holdings Plc are shrinking their global footprints.
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In a city where roughly 90% of the office stock is more than 20 years old old, the disparities are stark. New skyscrapers, including those at the Hudson Yards mega-development and One Vanderbilt near Grand Central Terminal, have filled up quickly, attracting the world’s biggest finance and tech tenants. Meanwhile, older buildings that haven’t been overhauled in the past decade or so can barely attract interest, even with major rent discounts.
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“The market is telling us very clearly that the era of driving to the cheapest price on office space, regardless of its condition, is, for most companies, no longer an acceptable real estate strategy,” said Mary Ann Tighe, CEO of New York’s tri-state region for brokerage CBRE Group Inc.
Tenants are gravitating to the best-of-the-best trophy properties that are close to transit hubs and fitted with posh amenities including gyms, luxury restaurants and outdoor terraces. If workers are going to leave the comfort of their home offices, they want nice perks in exchange.
“The requirements for a building are so much higher coming out of the pandemic,” said Sarah Hawkins, East Region CEO at Hines, which is working with SL Green Realty Corp. on the redevelopment of One Madison.
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Older properties are competing with giant blocks of space that are being constructed in towers such as 2 Manhattan West in the Hudson Yards area, and Deutsche Bank’s former headquarters at 60 Wall St., a 1980s building that’s getting an overhaul costing at least $250 million. Numerous towers are also under development, which will only add to the immense supply.
The Financial District is particularly saturated with aging towers.
“Downtown is a whole other thing because there’s so many of these lower-quality buildings,” Colp-Haber said. “The buildings that are suffering are 1970s vintage, that have nothing different about it, no particular charm, fewer windows.”
While many buildings in the area have had more-minor updates, they haven’t had the type of overhaul that’s needed to lure tenants these days.
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Even if landlords are willing to spend on modernizing their older buildings, some properties still won’t be able to compete.
“It really boils down to basic elements of the building: ceiling heights, structure, location, window line—that all matters,” Hawkins said. “Even with a full repositioning, you can’t compete because of the bones in the building.”
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