The market is going to determine what rises first and where.
https://commercialobserver.com/2024/...tout-recovery/
New York City Office Owners and Brokers Tout Recovery
Commercial Observer’s Spring State of Office Forum seeks to define what a return to normalcy — never mind the office — should look like
BY BRIAN PASCUS
MAY 17, 2024
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The optimism around the office sector was palpable Thursday morning at Vornado Realty Trust (VNO)’s new trophy tower, Penn 2, a glittering 31-story, 1.6 million square-foot office property near Madison Square Garden and Penn Station.
Inside the building’s 280-seat town hall space, which featured pristine views of a new tree-lined path that connects the Penn District to Hudson Yards along West 33rd Street, Commercial Observer hosted its annual Spring State of Office symposium.
Maria Torres-Springer, New York’s deputy mayor of housing, economic development and workforce, opened the forum by summarizing the various initiatives the administration of Mayor Eric Adams has put forward to improve the city’s real estate climate, much to the delight of the audience.
.....She even said that previous zoning laws have “made it illegal for businesses” to maximize their existing office space in New York City.
“Here’s the reality: The zoning code was written 60 years ago, and it’s time for a change,” said Torres-Springer. “And we’ve undertaken some really interesting work to make sure that happens.”
Top of mind for the Adams administration is working to improve New York City’s core business districts — Midtown, Lower Manhattan and Downtown Brooklyn — and turn them into 24/7 environments that are simultaneously livable and workable, according to Torres-Springer.
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Mosler remarked, however, that new construction in the city is trending far lower than the 9 million square feet delivered in both 2022 and 2023, and that the present dearth of new buildings will cause pricing to increase in the better product.
“You’re looking for a couple hundred thousand square feet on behalf of the client, and the options are becoming more and more limited in this highly bifurcated marketplace,” he said.
But, in a surprising counterintuitive turn, Vornado’s Weiss argued that it’s actually good that the city’s office pipeline lacks so much in the way of new development, calling that lack “a good thing for the supply and demand equilibrium” heading into the next 18 to 24 months, as it forces tenants and landlords hunting for higher-quality office space to make use of the existing supply.
“I don’t think now is the time to begin building new buildings, particularly on [speculation],” Weiss said. “You need a 1 million square-foot anchor tenant, construction financing rates are too high, so it’s just not the right time to start going up with a building unless it’s perfect.”
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As for those elusive anchor tenants, Weiss couldn’t help but note that some of the biggest names in business have committed themselves to New York recently.
“Forget Miami — it’s all about New York for Ken Griffin, and for Jamie Dimon it’s all about New York,” he said. “Companies are out there saying we’re going to stay in New York, and we believe in New York.”
....Brian Feil, principal of the Feil Organization, declared that while big deals get all the headlines, the majority of New York City office leasing involves smaller tenants who can’t afford $150-per-square-foot rents. He admitted that his firm “tries to temper” what it does to improve basic building fundamentals of its portfolio without spending $200 per square foot to attract each tenant.
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Russell Young, executive vice president at RXR, broke down the office sector into three categories. There are the tier one assets, like 1 Vanderbilt, Hudson Yards, and other top-of-the-line product. Then there are Class B assets, side-street assets, and office assets that need to be converted into something else — these are the bottom. In the middle is the vast majority, which are Class A buildings with varying levels of quality and can be financed accordingly.
“As it relates to our focus going forward, we’re focused on the upper segment of that middle branch: Class A assets that have great locations,” explained Young. “Contrary to noise, we’re seeing leasing in that segment.”
....William Elder, executive vice president and managing director of RXR’s New York City division, said that office leasing in a metropolis like New York comes down to neighborhoods, as areas like Grand Central Terminal tend to be “more law firm-, financial services-oriented,” while the Lower Manhattan Manhattan and Brooklyn areas are more for “gritty, city-type” tenants.
“At some point we get paid for all this, but it’s a lot of work, and at the end of the day you make your asset more valuable by attracting the people who want to get in there,” Elder said. “But you’ve got to really understand your customers, you’ve got to really dig in. Putting something glass and steel in front of one group won’t work [with others].”
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NEW YORK is Back!
“Office buildings are our factories – whether for tech, creative or traditional industries we must continue to grow our modern factories to create new jobs,” said United States Senator Chuck Schumer.
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