Following 10 years of recovery after the Great Recession, the Manhattan office market could be headed toward a downward cycle.
Even if those predicting a downturn are correct, for larger tenants looking for a new office, the music is about to stop in a different way, CBRE Executive Vice President Paul Myers said. Like a game of musical chairs, there may be more players than supply on the market.
Class-A construction completions will total approximately 9M SF across only five buildings between 2018 and 2019. Closed leases and deals are pending, but only 2.6M SF will remain available. For tenants looking for 250K SF or more, only three of the five buildings have enough space to meet their needs. For tenants looking for 500K SF and higher, only one of the buildings offers floor plates at that size.
“For large tenants, there has always been a concern over the availability of quality product. You may have 20 spaces on an availability report for a larger tenant, but only a handful of spaces will actually meet their needs,” Myers said. “The larger the tenant and the more important the need for what modern buildings offer, the shorter the list of good candidates.”
The level of concern over the availability of quality product is driving demand for new and like-new product, generating high numbers of property tours, requests for proposals and negotiations.
CBRE has leased almost 1.5M SF at 3 and 4 World Trade Center. Across the rest of the center, 1 WTC is over 75% leased and 4 and 7 WTC are 100% leased. With a large portion of the campus completed, new restaurants have started to crop up every day. The new PATH terminal and connections to 11 subway lines have also led to an increase in foot traffic.
“We have more activity at 3 WTC than we have available space, and tenants are starting to talk to us about the last piece of the site, 2 WTC, also known as 200 Greenwich St.,” said Ken Meyerson, CBRE vice chairman and a member of the leasing team for 3 and 4 World Trade Center.
Most of the tenants looking at 3 WTC are interested in new construction alternatives, and 3 WTC is appealing, given its column-free space, floor-to-ceiling glass, eight mechanical floors and architecture by Pritzker Prize-winning architect Richard Rogers.
“Tenants see the new World Trade Center buildings as a place that can help recruit and retain talent in a very competitive hiring environment,” he said.
The next wave of office deliveries will be ready for tenant occupancy from 2021 to 2023, and will add only 3.4M SF of availability. The possibility of no further leasing would leave a gap in delivery of new product available for occupancy from late 2019 to early 2021. Developers are renovating four large Manhattan buildings to like-new condition to fill the gap.
The buildings will total 4.3M SF, with 1.3M SF of pre-leasing and/or signed letters of intent. Similar to new construction, these buildings are also showing high levels of property tours, requests for proposals and negotiations with prospective tenants.
This appetite for new product may drive forward projects in the planning phase to lead the next wave of new construction.
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