Interesting effects of city planning and zone on real estate economics. I am sure this case will be studied for a many years to come.
The Class A out-performance has been playing out in Chicago as well which hasn't suffered from the same zoning issues as NY I don't believe. Salesforce broke ground on a new tower there
after the pandemic started. Several other major towers were completed around that time as well, 110 Wacker, BMO Tower - several other new office space in Fulton Market has kicked off since the pandemic too. And there is a big project to convert old vacant office space to residential now.
I think a lot of it is once a new standard is set, basically all of the previous stock becomes antiquated and you're almost starting from 0 again. If you're not in Hudson Yards or in a new building you're 2nd tier.
Also I think there's an element of induced demand - once people see the shiny new developments then what was Class A becomes Class B. Or maybe now there is a new class A+ or something.
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Originally Posted by NYguy
^ Good look at the 3 designs.
The problem with New York is, even though there is a lot of office space, and a lot of office buildings, most of them - especially in Midtown East - are 80 years or older. New York hasn't really done a good job of renewing it's office supply, mainly due to zoning restrictions. Midtown East was zoned down, so most of the office buildings that could or would have been replaced would have had to be replaced with smaller buildings. Which was ridiculous. That all changed with the Midtown East rezoning. Meanwhile, the Hudson Yards was the city's effort to provide a space for the kinds of new office towers companies demand, it has proved more successful than really anyone thought.
Which brings us back to Midtown East. The largest, and really the only new significant office tower under construction is 270 Park Avenue, the headquarters of JPMC. It can't really be counted as an option, since it will entirely belong to JPMC.
Citadel, being the prime tenant at 350 Park, will get the best floors, and I'm sure some of the upper floors. The heavyweights like to be the anchor tenants in the new buildings. The smaller, upper floors of new buildings are some of the most expensive in the city. If you need a half million sf of space or more, you really want to be an anchor tenant in the early stages.
But when people wonder why new office towers are going up in the city, with a high vacancy rate, the issue is what's in demand. Not all office space is the same, and it's the newer office space that is in demand.
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