Hudson Yards Has Generated A Seismic Shift In NYC Real Estate
Seven years after its official groundbreaking, Hudson Yards — the biggest private real estate development in U.S. history — is formally opening this week. And the megaproject, decades in the making, is expected to have a profound impact on the city for years to come.
Once complete, Oxford Properties Group and Related Cos. development — which runs from 10th Avenue to 12th Avenue, from 30th Street to 34th Street — will feature 18M SF of commercial and residential space, including some 100 shops and 4,000 apartments, as well as a performing arts center and 14 acres of public space.
“Its an extremely important project, both for concrete reasons, and for symbolic reasons ... It demonstrates for the first time in generations that New York is able to plan — and execute — on a large scale,” said RXR Realty Executive Vice President Seth Pinsky, who was involved in Hudson Yards when he worked for former Mayor Michael Bloomberg.
“There was no evidence that the city was capable of doing that," he said. "Now we have a project that, in less than a lifetime, went from the drawing board to reality.”
A New Bar For Office Space
As pieces of Hudson Yards has begun to come together, traditional Midtown office tenants started to look west. In 2014, Time Warner announced its plans to move to 30 Hudson Yards from Time Warner Center, another Related build-to-suit. The next year, Wells Fargo signed a deal to move its New York office from 150 East 42nd St. to 30 Hudson Yards.
Both deals were condominium purchases, allowing the Fortune 500 companies to invest in the development and providing Related and Oxford with the capital needed to build its tallest building.
L’Oreal USA started moving its staff to a new headquarters at 10 Hudson Yards in 2016, and BlackRock is leaving Park Avenue for the most expensive building in the new neighborhood, 50 Hudson Yards, when it opens in 2022.
Meanwhile, Tishman Speyer’s planned tower at 66 Hudson Blvd., known as the Spiral — separate from Related and Oxford’s patch — has bagged an 800K SF lease with pharma giant Pfizer, and law firm Skadden Arps has opted for space at Brookfield’s Manhattan West megaproject nearby.
“Obviously it’s been an overwhelming success,” Savills Studley Vice Chairman Jeffrey Peck said. "There’s been a stampede of tenants that have welcomed this new product."
New York's average office building is of retirement age, and Hudson Yards has shown that tenants are willing to pay for top-quality, new buildings, Peck said. Many landlords in Midtown are renovating buildings as a result of this seismic shift.
Asking rents for office buildings in Hudson Yards went up 40% between 2017 and 2018, according to CBRE data cited by Bloomberg, and now average more than $110/SF.
The impact on Midtown will be significant as large blocks of space become available. How that space will be filled is still an unknown.
“All of these tenants will be vacating in the next 13 to 24 months from their current locations, and going to Hudson Yards,” Peck said. “This could have a big impact on the availability rate … That will have an impact of downward pressure on pricing.”
On Public Spaces, The Jury Is Out
Ultimately, Related and Oxford say their project will provide 14 acres of open public space and a 750-seat public school.
The project’s centerpiece, the Vessel — as it is being called for the time being — and the public square will open to the public Friday, as will the Shops & Restaurants. The new arts center, the Shed, a 200K SF modular building, will open officially April 5.
“The jury is still out, it is not open yet," said Vishaan Chakrabarti, the founder of the Practice for Architecture and Urbanism who served as the director of City Planning’s Manhattan office from 2002 to 2005, when the rezoning for Hudson Yards was undertaken.
He said recent coverage suggesting the government incentives and subsidies for the project were some form of a giveaway was “clickbait poppycock,” but agreed it is important to monitor how the public space is used.
“There is a fundamental obligation on the part of the developers to maintain all the public space as public space, to provide waterfront access to the public … They’re part of the deal, and future governments have to enforce the deal,” he said, adding that he would like the finished product to have the same “inviting” feeling as Rockefeller Center.
“What we don’t want to see is the space taken over by tents for corporate events and galas, things that signal to the community that this is not for them,” Chakrabarti said.
A New World Of Retail Opens In A Challenging Environment
As of noon on Friday, the public will be able to walk through the almost 1M SF retail center at Hudson Yards, anchored by a 190K SF Neiman Marcus. The center is reportedly 85% leased, filled with established retailers, “digitally native” brands, a mix of restaurants and “Snark Park,” a permanent exhibition space from design studio Snarkitecture.
All forms of brick-and-mortar retail are facing an upward climb, as consumers flock to e-commerce. Adding to the challenge is Hudson Yards is still somewhat out of the way — a significant walk from Penn Station and only serviced by the Subway's 7 line.
“It's challenging for retail all over the country,” Cushman & Wakefield Senior Director Alan Napack said.
The project has added a whole new retail market to the city, Napack said. He believes over time, traffic patterns will adjust, noting that Brookfield Place in Lower Manhattan faced similar challenges.
“Related tried to address some to those issues by bringing in some of those digital native companies that will create something that is a destination in itself," he said. "The F&B component is impressive, they have a good lineup. It’s basically a whole new submarket that didn’t exist before. It’s exciting. But it’s going to take some time to ramp up.”
Colliers International Vice Chairman David Green said the project has every chance of making it, even amid an ailing retail environment.
“It’s new and exciting and different, and that’s a recipe for success — even in a challenging retail environment,” he said.
Luxury Buildings Open In A Lagging Market
This week, sales launched at the project’s tallest residential building, 35 Hudson Yards — which will feature 143 residences, private amenities, an Equinox Hotel, Club and Spa, as well as office space.
“What's nice about this building is that it is mixed-use. It’s a variety … It has life and activity,” David Childs, the building's architect, said at the unveiling of sales units Wednesday morning.
The condominiums there start at $5M, according to The New York Times, and excluding the yet-to-be priced penthouses, the average price works out to be $11M.
The first residential building at the project, 15 Hudson Yards, opened earlier this year, and as of January was 60% sold, per Related. Two luxury rental buildings, Abington House and One Hudson Yards, are also among the residential offerings already built.
Related CEO Jeff Blau told CBS this week that as part of the project, the developers committed to building or preserving around 1,100 units of affordable housing.
Even so, selling the high-priced condos may not be a slam dunk. The city is awash in uber-luxury product, and some sponsors have resorted to cutting deals and slashing prices in order to move their units.
“We have lost a good portion of the foreign buyers, [and] the Chinese are looking between $1M and $3M,” Douglas Elliman broker Richard Steinberg said.
He has heard that people are keen to move there from the Upper East Side, but some buyers to whom he has suggested the buildings said it was too far west.
Still, he said, the big office moves will be a significant boost for sales at the building.
“The climate is not great," Steinberg said. "[But] they have created a unique experience.”