KKR Abandons Plans For 300K SF Manhattan Expansion
KKR has pulled back on its plans for a new Manhattan office.
The private equity titan had been considering a 300K SF space near its headquarters but has since backed away, Insider reports.
KKR had reportedly been looking at Morgan North — a former postal facility in Chelsea whose upper floors underwent a Tishman Speyer conversion to become office space — as part of a move to consolidate its New York City office footprint.
“We have paused our review of that space and are not moving forward at this point,” a person at KKR, who was unnamed, as they weren't authorized to speak publicly about the decision, told Insider by email.
KKR has 2,200 employees in total, with its NYC workers based in its 30 Hudson Yards headquarters and two smaller spaces at 10 Hudson Yards and 4 World Trade Center.
Morgan North would have allowed KKR to grow operations while consolidating the two smaller spaces. But the firm plans to slow new hiring, instead focusing on integrating existing employees into operations, an unnamed investment executive told Insider.
Like many other companies, KKR has been anticipating a recession in the near future, Head of Real Estate Americas Chris Lee said at a Bisnow event in September.
KKR co-founder and co-Executive Chairman Henry Kravis has expressed enthusiasm for a full-time return to the office, according to Insider. But amid a slowing economy, plus continued employee demand for remote work, KKR’s change of heart brings the firm into alignment with several other large office occupiers that are reining in their NYC office space.
Facebook parent company Meta is vacating its 225 Park Ave. South lease four years ahead of its expiration, leaving its 200K SF vacant, the company told Bisnow in early October.
Demand for new office space in the Big Apple is softening: A study published in September by real estate software firm VTS found that demand for NYC office properties was 44% lower than in February 2021.
NYC’s office market isn’t alone in its suffering, as tech firms seek to sublease space in major metropolitan areas across the country. Lyft is subleasing 45% of its office space in San Francisco, NYC, Seattle and Nashville, Tennessee, while Amazon has halted construction on six planned office towers in Washington state and Tennessee due to hybrid work.
Leasing in Manhattan’s office market picked up during the summer. Tenants signed leases for 9.1M SF of offices in Q3 2022 — higher than Q3 averages between 2015 and 2019 — but office usage is still less than half of pre-pandemic levels, Kastle Systems data shows.
But most leases signed in recent months have been smaller and shorter-term, experts told Bisnow earlier this year. Companies are gobbling up Class-A office space at remarkable speed — a dynamic that is creating downward pressure on Class-B and C space.
“It’s definitely still a tenant's market, but actually in the Class-A and trophy buildings in that flight to quality that you keep hearing about, their rents are actually rising,” JLL Vice President Lauren Calandriello said in late August. “The commodity space is where landlords are a little bit more flexible on rents, and we're continuing to see concessions be high with free rent.”