Extell's Newest Tower Is Redefining Manhattan's Medical Office Market

A tower that just wrapped up construction on the Upper East Side has no comparison in recent Manhattan memory.

The just-completed tower at 1520 First Ave. is poised to be the first ground-up medical office tower in the borough in decades. And its developer, Gary Barnett's Extell Development, is seeking the highest rents that market watchers have ever seen.

“1520 is definitely top of the market,” said Elliot Dennis, founder and principal broker of medical office specialist Dennis Healthcare. “It's new construction. It's the first one of its kind in a very long time.”

Barnett put together the assemblage for the 30-story, 425K SF medical office building in 2018. He landed the Hospital for Special Surgery as a tenant for 200K SF across the building’s first eight floors in 2021 and tasked Newmark with leasing up the remaining 235K SF. 

“Office demand is very, very strong right now,” said Newmark Executive Managing Director Jonathan Fanuzzi, who is leading the leasing team. “Even for small groups, the options for them to find space are somewhat limited.”

The building’s remaining space is split into two sections, each with triple-digit asking rents. The ambulatory care facilities, occupying floors nine through 16 with floor plates averaging 17K SF, have asking rents that start at $100 per SF. And its 6K SF tower floors, from 18 through 30, are seeking $125 per SF.

Those rents are steep for traditional healthcare tenants, said Mitsuko Ueda, Mount Sinai’s director of real estate acquisitions and dispositions.

“I personally haven’t been dealing with $125 per SF just for the doctor’s office,” she said. “Even if it's a retail space, we've been negotiating something below $100.”

Fanuzzi and Dennis, who are respectively negotiating for space in the building on behalf of the landlord and tenants, said they couldn't disclose lease details because they hadn’t closed deals yet. Extell didn’t respond to a request for comment.

Extell’s rents and floor plates indicate it is targeting tenants who offer the same level of service as the concierge medical facilities that surged during the pandemic — quick appointments, plush receptions, short waiting times — for boutique treatments, brokers said. 

Mount Sinai, by contrast, typically looks for footprints of roughly 20K SF where it can house several outpatient centers in a single space in the name of efficiency, Ueda said.

“The tower floors are definitely ripe for plastic surgeons, dermatologists, maybe a high-end cosmetic dentist, potentially some specialties with some sort of procedure-based practices,” Dennis said. “Because those are the ones that you know can carry a premium rent, like the ones that they have at 1520.”

The development’s location in the Upper East Side’s medical hub is likely to add to demand for its space, Dennis said. The corridor has been home to some of NYC’s biggest hospital systems since the early 1900s.

Medical practices signed 5.4M SF of leases in Manhattan between 2018 and 2024, and the Upper East Side was the No. 1 market for patient care uses, according to a report from CBRE. Those facilities run the gamut from pediatric doctors to plasma exchanges and ketamine clinics, which often gravitate toward the neighborhood.

But much of that leasing is in buildings that weren't developed with healthcare in mind. The UES is primed for new medical space like Extell’s development, Dennis said.

“The reality of a lot of the Upper East Side healthcare spaces on the ground is that they're old and they're tired,” he said. 

And tenants have even less space to choose from than they did a year ago.

Manhattan’s office market is booming, beating its pre-pandemic leasing records last year, signing 43M SF of leases and ending the year with an availability rate of just 13.9%.

Demand is heavily concentrated in trophy and Class-A buildings, but landlords also took 2.1M SF of office space off the market last year for conversions, according to Colliers.

Some of those properties destined for conversion were the types of buildings that marketed themselves to medical tenants with discounted rents in an attempt to increase occupancy, Dennis and Fanuzzi said.

But a purpose-built development is much more attractive to tenants that can afford it, TPG Architecture Managing Executive and Studio Director Al Thompson said. 

“If the building is built properly and has the right electric, HVAC — where you could put almost any specialty in the building — that saves every healthcare system nine months to a year of design and construction,” Thompson said. “That's valuable for almost everybody.”