Top-Tier NYC Office Space Is In High Demand. Why Isn’t It Leasing In Chelsea?
A few blocks south of the shiny high-rise office towers in Hudson Yards, a newly revitalized office tower is about to come online.

As it awaits its temporary certificate of occupancy, the 1.3M SF Terminal Warehouse project spanning a full block between 11th Avenue and the Hudson River has yet to finalize any leases. The developers and brokers working on its lease-up process are hopeful that the demand for best-in-class office space will reach West Chelsea.
But brokers and analysts say that other factors, like design and distance to public transit, mean West Chelsea’s trophy office stock may be waiting awhile before it gets the tenants it is after.
“It's a submarket that catered to a very specific kind of occupier — more tech, media, creative, advertising,” said Andrew Lim, director of New York research at JLL. “Those, unfortunately, happen to be sectors or industries that have been relatively quiet over the past two years.”
Data shows that even as best-in-class office space has leased rapidly elsewhere in Midtown, that demand has yet to reach the Chelsea submarket.
Chelsea had 17M SF of inventory in its office market and a 26.3% availability rate, including sublet space, at the end of the fourth quarter, according to Avison Young data. It is part of the Midtown South market, which had an average availability rate including sublease space of 20.2%.
The only submarkets in Avison Young’s Midtown South bucket that had higher availability rates were the Lower East Side at 30.7% and the West Village — which sits right below the Chelsea submarket geographically and had the highest availability rate of any submarket in Midtown South at 31.5%.
Plus, according to Avison Young’s Q4 count, there is another 158K SF of office space due to come online in the Chelsea submarket.
All of that could be a problem for Terminal Warehouse, an 1891-built warehouse where co-developers L&L Holding Co. and Columbia Property Trust are wrapping construction after scoring a $1.3B construction loan to revamp during the pandemic.
Other properties in the submarket offer a potential glimpse into the future. The first obstacle is the distance between some of the trophy office properties and public transit, Lim said. Adding an extra leg to a commute, whether it is a walk, bus or even a shuttle, is a hard sell to tenants that would then have to ask their employees to lengthen their commutes.
Tishman Speyer's 645K SF Morgan North office building at 341 Ninth Ave. is completely available, researchers at multiple firms told Bisnow. The building, formerly NYC's largest postal distribution center, signed advertising firm Dentsu for 320K SF in 2019, but it put its space up for sublease in 2022.
“It's like super, super simple, back to the basics of real estate: location, location, location,” Lim said. “It's just a harder location.”
Also in the submarket is RXR’s Starrett-Lehigh Building, where luxury fashion retailer Ralph Lauren renewed its 250K SF lease in 2023. But the property has seen little activity since, researchers confirmed to Bisnow.
“You have a warren of different spaces,” Lim said. “Really, it's made for that creative tenant. But in a way that a bank would never be in there.”
RXR and Tishman Speyer declined to comment.
The challenges that Morgan North and the Starrett-Lehigh Building face are symptomatic of the struggles of most office buildings in Chelsea, said Matt Schreck, Savills’ research director for New York and the Tri-State region.
“Leasing has been slow in that part of the market, barring some few exceptions,” he said. “It comes down to the combination of more limited transit accessibility coupled with the candidate mix that's in the market and where they tend to seek space.”
The walk from Penn Station to Morgan North is roughly 10 minutes, according to Google Maps. The Starrett-Lehigh Building is a 15-minute walk from either the 34th Street-Hudson Yards stop on the 7 train or the 23rd Street stop on the E train.
Cushman & Wakefield Executive Vice Chair Josh Kuriloff, one of the brokers for Terminal Warehouse, said he doesn’t believe the property he is marketing will suffer in the same way.
“I'm not going to go and tell you that we are above a major transportation hub, because we're not,” he said. “But we are a 10-minute walk, and you can walk through the High Line right to our building from Penn Station.”
Terminal Warehouse is still in the early stages of filling its floors, but it is in negotiation with food and beverage, fitness, conferencing and event space tenants on leases totaling 100K SF, Kuriloff told Bisnow. Several office tenants have also toured the property and are in talks to take space at the building, although those discussions have yet to enter the realm of formal lease negotiations.

Kuriloff said he believes the squeeze for high-end office space will soon reach Chelsea, benefiting Terminal Warehouse as tenants look for large blocks of space in trophy and Class-A buildings.
“There is a shortage in Manhattan of high-end quality real estate if you need a large block,” he said. “Despite the perception of the commercial office market being in the doldrums in Manhattan, it's not true for the best assets. So we think we have tailwinds.”
But the other obstacle, besides asking New Yorkers to schlep through the streets in the frigid winter or the humid summer, is the types of office tenants signing for space. That has shifted from the kinds of companies that were hunting for space a few years ago, when some of these blocklong Chelsea offices kicked off their transformations.
In the years preceding the pandemic, some of the world’s largest tech firms were rifling through Manhattan availabilities as they sought out large blocks of open space. But in recent years, it has been legal and financial services firms that have signed the largest leases in Manhattan. Those types of tenants tend to have different requirements for their space, such as private offices.
“I will tell you candidly, legal would not come to this building,” Kuriloff said, though he said it could still be appealing to financial services, professional services and tech firms.
JLL's Lim said he doesn't think the large, open floor plates of Chelsea’s newly polished, blocklong office buildings would appeal to legal or financial services firms.
“They're usually too open for a financial services company,” he said. “And they would never work for a law firm.”
Tech and creative tenants have markedly different visions of and requirements for office space than legal and financial services firms, according to Laurent Lisimachio, a principal at Gensler.
“Large contiguous spaces were very popular in the tech sector prepandemic, and we're not seeing that now,” he said.
While all tenants want highly amenitized buildings and share an appreciation of large, open spaces, legal and financial firms often seek room for the company to grow and the flexibility to create enclosed, private spaces within the office, he said.
“The private office is alive and well,” Lisimachio said. “A technology firm can have as much enclosed space as a financial services firm, but they're not going to put somebody's name on the door. That space is not dedicated to one person. In the financial services world, it's still very much an assigned model.”
While tech giants were largely absent from the NYC office leasing market in the years following the pandemic, they began to trickle back last year. Tech tenants still may be in the mix at Terminal Warehouse, Kuriloff said, adding that his team is in conversation with “one of the largest, fastest-growing tech companies in the country right now.”
Additionally, Manhattan’s shortage of trophy and Class-A office space will soon reach Chelsea as tenants become willing to search farther afield to land in the city’s swankiest office offerings, Kuriloff said.
“If you need space in the next 24 to 36 months, because of the pandemic, there's really no new construction in the pipeline,” he said. “And even if you get financing for new construction, it takes five years to build a building in New York.”
Peter Johnson, a director for Avison Young’s New York City Office practice and a broker covering the Chelsea submarket, also believes that the market is due for liftoff.
“Chelsea can reap the benefits as tenants ‘spill over’ from these neighboring submarkets with limited inventory,” he said in an email. “With continued investment in infrastructure, sustainability upgrades, and tenant-focused amenities, it could transition from a ‘laggard’ to a sought-after destination.”