Over a decade ago, people in the industry questioned the need for new construction, however, over 25 million square feet has been built since then and almost all has been leased. All new buildings are first class with the latest and greatest improvements. Most say that no other city in the world can support that much square feet of new space. All new offices are giving tenants a place where they can grow and be happy all while enjoying the more open and collaborative workspaces. As the TAMI sector continues to grow, they will need buildings that have better light, views, infrastructure, and more services. This is has pushed older building into spending money and revamping themselves. In 2020, owners are going to make their buildings be usable for tech companies, service, finance, education, and health care. 1177 Avenue of the America’s created a full floor of amenity space with a lounge as well as fitness and yoga classes. In the Finance District, over $50 million has been added in upgrades to the Equitable Building at 120 Broadway.
Last year, Uber and Dotdash made downtown Manhattan home base. We believe this is due to so many millennials and young people moving to Brooklyn and enjoying the shorter commute to downtown Manhattan. This brought office leasing to a two-decade high in this area. With TAMI companies being the big contributors to this area, they are showing lower Manhattan’s revival since the 2001 terrorist attacks. People are calling it the “Conde Nast effect” as after Conde Nast leased over 1.1 million square feet at One World Trade Center in 2011, there have been 51 TAMI deals. Last year, the number of jobs in this area exceeded the levels at the time of the attacks. New construction, less-expensive rents, large office spaces, and new transportation hubs attracted companies signing over 7.3 million square feet, which is the largest it has ever been since the late 1990s dot-com boom. Lower Manhattan’s average asking rents rose 13 percent to $62.96/foot, but they are still cheaper than Midtown and Midtown South.
Office Leasing Activity Near Two-Decade High
New York City’s office market is continuing to grow and be strong for owners of new and reimagined buildings. Fisher Brothers, which is currently in a portfolio-wide capital improvement program, is adapting traditional Midtown office buildings for the 21st century. At 1345 Avenue of Americas, a more bright, spacious, and interactive lobby was created with raising ceiling heights, expanding the main entrance and an LED-powered luminous wall. The improvements at 1345 also traveled outside with reimagining Fisher Park and the public plaza’s surrounding the building by bringing the “look and feel” of Central Park to the front door of the building. At 299 Park Avenue, it will install a 60-foot cinematic art piece utilizing interactive technology, and the LED lobby display will vary depending on the time of day and seasons, creating a screen that is ever changing.
We See Continued Growth
While demand for office development is high, some worry that legislation about the possibility of commercial rent control could stop the growth in a few years. On the other hand, others say that this legislation won’t make it past the talking stages. Norman doesn’t believe this is going to happen. Debt and equity capital will remain available for transactions and the growth of technology as a part of NYC’s economy will attract more tenants. One big thing coming in 2020 is Google becoming the new anchor tenant for 315 Hudson Street. Over $65 million will be used to redevelop the property. It will include open workspaces, a rooftop garden, event spaces, and multiple dining facilities. One Seaport Plaza (199 Water Street) is now 97 percent leased after a major tenant’s lease expired in 2018. Tenants include media, financial, and healthcare companies. The shift in the city’s employment base from financial to technology will be a big story this year. More millennials are moving to cities and joining the tech sector. This past year, NYC saw increases in leasing for the third year in a row and more than 20 million square feet will be delivered between 2015 and 2025.
As the NYC investment sales market closed, the industry was showing signs that 2020 could have an economic slowdown. But with the strong fourth quarter in 2019, that now isn’t the case. There was a boost in dollar volume from office transactions, ground lease transactions, steady, low interest rates, rapid leasing from tech companies, and a surfeit amount of capital on the sidelines. Private equity raised almost $151 million, which was a new record, and overall the 2019 year ended with 641 investment property sales that were above $5 billion in NYC. The office segment outshined other classes in the market with a 17 percent increase and the driving of that market was the TAMI sector.
As someone crosses Fifth on 34th Street, they have an unobstructed view of the Flatiron Building and a little further down, they can see the Empire State Building. Built in 1902 and 1931, respectively, these landmarks have given tourists and native New Yorker’s a picturesque scene they should never forget. However, this 11-block stretch on Fifth Avenue, which is also known as the “Iron-Empire Corridor”, is under a huge amount of development pressure. At least eight towers were recently built, under construction or are planned on or near Fifth between 28th and 33rd Street. A supertall, 1,011-foot building at 29th Street and Fifth is threatening to take away the view of the Empire State when looking from the Flatiron. Condo’s and multi-use towers are built on 262 Fifth, 15 E 30th, and 29th Street as well. At 262 Fifth, the creators said the building is 240 feet shorter than the Empire State out of respect for the building.