Posted Oct 25, 2021, 4:53 PM
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New Yorker for life
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Join Date: Jul 2001
Location: Borough of Jersey
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https://www.crainsnewyork.com/commer...-having-moment
Midtown's office market is having a moment
October 25, 2021
EDDIE SMALL
AMANDA GLODOWSKI
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After years of playing second fiddle to massive new developments arriving elsewhere in the city, Midtown's office market is experiencing a renaissance.
Driving the momentum are employers' desire to make the commute easier for employees hesitant to return following 19 months of remote work and the highest amount of new office space coming to the neighborhood since the redevelopment of Times Square in the 1980s.
Companies are flocking to the market to help some of their employees who live outside the city avoid a double commute, for which they must take a train into Manhattan and then get on the subway for another leg of their trip. The pockets of Midtown closest to major transportation hubs such as Grand Central Terminal and Penn Station are thus seeing a particularly strong popularity boost, said Jeffrey Peck, vice chairman at real estate brokerage Savills.
“ Most tenants today are in the market not only to be in Midtown, but to be proximate to Grand Central and Penn Station like never before," he said.
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About 36% of Manhattan's 540 million-square-foot office market is within a 10-minute walk of such transit hubs, and easy access has become even more of a talent draw coming out of the pandemic.
Leasing activity was particularly strong in Midtown during the third quarter, when companies took about 3.3 million square feet of space in the neighborhood, compared with 1.8 million square feet in Midtown South and 775,000 square feet downtown, according to the latest office report from CBRE. This was even more activity for the neighborhood than during the third quarter of 2019—before the pandemic—when Midtown saw about 2.9 million square feet of leasing compared with about 2.6 million in Midtown South and 1.8 million downtown, CBRE found.
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A number of high-profile new office buildings in Midtown, such as SL Green's One Vanderbilt and L&L Holding Co.'s 390 Madison Ave., have added to the neighborhood's appeal and could be a bright spot for its future. With the Long Island Rail Road poised to reach Grand Central next year, Midtown will become an even more attractive option for the endpoint of a commute—and potentially take away one of the main draws of offices near the much-maligned Penn Station, even as officials work to extend the Metro-North Railroad to that station as well.
“Within our portfolio, clearly the buildings that surround Grand Central Terminal—whether Third Avenue, Lexington, Park—anything that's within a five- to 10-minute walk of Grand Central seems to be getting a lot more leasing velocity," said Steven Durels, SL Green's director of leasing. "With the LIRR coming to Grand Central, nobody's really going to need to sacrifice. The physical environment that surrounds Grand Central is a less chaotic assault on the senses than Penn Station."
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Overdue new product
One Vanderbilt is about as close to Grand Central as an office building can possibly get. SL Green opened the building to much fanfare in September 2020, and it is more than 91% leased, the company said, despite the rough state of the office market.
Its proximity to Grand Central comes up in almost every discussion the company has about the building with prospective tenants, Durels said. That it is a new building plays a role in its appeal as well and makes it more competitive with places such as Hudson Yards, he said.
"Midtown didn't have as much new product and/or very heavily renovated product, so tenants were sacrificing on location and going to Hudson Yards," Durels said. "But now that you've seen some big buildings go through major renovations and new structures like One Vanderbilt coming online, tenants don't have to sacrifice location, and they're willing to pay for better-quality product and better-located product."
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The newer office buildings are at least as important to Midtown's popularity as its being home to Grand Central. Between 2011 and 2021, the area had a net loss of 11.7 million square feet worth of large office tenants, mostly because they were flocking to newer developments in other parts of Manhattan, real estate brokerage Colliers found. Now, however, the neighborhood is getting almost 9 million square feet of new office space by 2024, which surpasses downtown for the future outlook. (CBRE considers Hudson Yards to be part of the Midtown office market, whereas Colliers considers it part of Midtown South.)
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Although New Yorkers are never short on things to criticize about Penn Station, that area is poised for a major transformation, thanks in large part to Vornado Realty Trust's ambitious plans for the neighborhood. The company has already completed its redevelopment of 330 W. 34th St., and it is at work on transforming the Farley Building at 390 Ninth Ave. and two projects dubbed Penn 1 and Penn 2 into new office buildings.
Related Cos. spokesman Jon Weinstein cited Hudson Yards' proximity to Penn Station as a big reason why the developer has "zero concern" about its office buildings losing popularity coming out of the pandemic.
“Our Hudson Yards office space is 93% leased, with the highest rents in the city—reflective of the outsized demand," he said.
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