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Landlords are showering tenants with tens of millions of dollars and months of free rent. They are paying moving expenses and for customized alterations. In exchange for this largess, building owners can charge inflated rents that amount to much less than their face value suggests when all the giveaways are factored in. Nowhere is this more apparent than in Manhattan’s new trophy buildings. The average cash payment to tenants for the borough’s most expensive leases more than doubled over the past five years, from $76 a square foot in 2016 to $154 in 2021, according to a source. For many office landlords, the pandemic is a lethal threat that requires cutting whatever deals it takes to survive as vacancy rates reach levels not seen in decades. Paying money to inflate rents helps keep building prices high despite the rise of remote work, meaning landlords can expect to profit when they sell a building or take out a mortgage. That is because banks and investors calculate property values, in part, based on a building’s rents. High rents also create confidence in the broader property market, boosting publicly traded companies’ share prices and attracting investors. Recent events have accelerated the trend. Supply-chain issues have pushed up construction costs, meaning tenants need more money to build out offices. Hybrid and remote work have reduced demand for office space. To keep rents from falling, landlords are forced to write bigger checks for construction work and agree to longer rent-free periods, brokers say. In effect, they are paying tenants to keep their building values high.
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The team at RXR Realty is breathing a sigh of relief now that television-streaming company Roku is taking over 240,000 square feet of prime office space at its 5 Times Square office tower that had been left behind by longtime tenant EY, The accounting firm, which has occupied the entire 1 million-square-foot building since 2002, moved its offices to the newly-built 1 Manhattan West in July–a big vacancy for 5 Times Square’s landlord to fill in a tricky office market. Roku, meanwhile, is more than tripling its Manhattan footprint from the 70,000-square-foot lease it currently holds at 114 W. 41st St. and will move into the top eight floors of the new space by year’s end. A joint venture between RXR Realty and David Werner purchased the building in 2016 and began a $50 million repositioning to add more amenities, including workspace lounges, podcast and recording rooms, a fitness center, a lecture hall, a restaurant, food and beverage offerings as well as modern elevators and access to the property through the Times Square-42nd Street subway station.
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What beMayor Eric Adams can do to bring people back to the office isn't all that hard. All he has to do is look back to 2001-02 after Sept. 11. After the deadly attacks on New York, downtown Manhattan was said to be dead. But the Lower Manhattan Development Corp., a commission that was established to oversee the World Trade Center development, wanted incentives to put some life back into downtown, so it introduced a rebate program for anyone who rented an apartment in Lower Manhattan. That program gave $6,000 a year to anyone who signed a one-year lease and $12,000 a year to anyone who signed a two-year lease. Now, with the current conditions that have kept everyone working from home for the past 2 years, The city can create an incentive for the major business districts—in Midtown and downtown—and perhaps offer employers a credit on the payroll tax if they are able to bring 80% of their employees back to the office for two years. The city could offer employees the same rebate it offered 20 years ago—$6,000 for one year and $12,000 for two years if they come and work in the office. The city could perhaps even throw in two years of unlimited MetroCard use to get people subway. If it took two years to get people used to working from home, we can get them used to working back in the office in that same time frame. The city would then be able to generate income from the sales tax and income taxes from the jobs that would be created around these areas in restaurants and retail. If we were able to pay people and incentivize them to stay home, we can do the same to get them to return to work.
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The London-based bank, HSBC Holdings Plc, is considering a lease for roughly 250,000 square feet of offices at the Spiral, a skyscraper being built by Tishman Speyer on Manhattan’s far west side, according to people familiar with the matter who asked not to be named because the negotiations are private. No deal is done yet and talks may fall apart. The Spiral, a 1,031-foot tall, 65-story tower that’s being constructed at 66 Hudson Blvd., is set to be completed this year. It will have 2.85 million square feet of office and retail space, cascading terraces and hanging gardens. Much of the building has already been leased to tenants including Pfizer Inc., Alliance Bernstein Holding LP and law firm Debevoise & Plimpton LLP. If HSBC signs a deal at the Spiral, it would be one of the biggest bank leases in Manhattan since the pandemic started. Morgan Stanley recently agreed to take roughly 400,000 square feet of additional space at Park Avenue Plaza in Midtown.
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Retail leasing velocity increased in the fourth quarter of 2021, according to a report, as the rolling four-quarter aggregate leasing velocity — which measures renewals and new leases for the four prior quarters — rose to approximately 1.86 million square feet. The figure is up 17 percent from the prior quarter, but still 14 percent below the prior year. The number of direct ground-floor availabilities in the fourth quarter decreased to 266 spaces from the 282 recorded in the third quarter across the 16 retail corridors that were tracked. On Broadway in SoHo, for example, availability dropped 24 percent from 25 to 19 spaces. The average retail asking rent in those 16 retail corridors dropped about 1 percent to $597 per square foot, or 8 percent below the prior year. This marked the 17th consecutive quarterly decrease, as pricing remains at levels not seen since 2011. Areas typically highly trafficked by tourists have seen greater rent declines. Average asking rents in Times Square fell to $1,189 per square foot, a 1 percent quarterly decline and 17 percent annual decline. Asking rent in the fourth quarter marked the first time that average pricing in the corridor fell below $1,200 per square foot since 2011.
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