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New York Real Estate News Archive 2004 News January 2004

January 2004: New York City Retail, Office and Industrial Market Report

New York Market Overview:

Rents are off their recent lows as landlord’s expectations of future market conditions have begun to change in view of New York City’s slow but continued economic recovery. Jobs losses have stemmed and there has been some net job creation, especially in the not for profit and education labor markets. However, even though a number of corporations such as Bank of America and Pfizer are planning expansions, these job gains are mitigated by the planned relocation and geographical diversification of major financial firms such as Goldman Sachs, Morgan Stanley, Bank of New York, TIAA-CREF and many more.

  • Goldman Sachs is considering moving support staff and equity trading to Jersey City having rented 600,000 RSF there.
  • Morgan Stanley which bought the former Texaco World Headquarters, a 725,000 Square Foot Facility in Harrison, Westchester plans to move 2,100 to 2,200 jobs there.
  • Bank of New York is moving their back offices to a 396,000 square feet tower in Brooklyn and is expected to move 1,400 employees there in mid-2004.
  • MetLife plans to move 1,700 employees to Long Island City.
  • New York Life is considering moving 1,000 employees to Westchester.

While rents of class “A” offices in Midtown and in particular the Plaza District are up 4% over last quarter they are still off 6% from a year ago. However, with landlord concessions towards work and construction being gradually reduced and competition for choice spaces increasing, effective prices are likely to continue to rise unless the economic recovery stalls.

Whereas rents in Midtown South are still soft but firming, having risen 3.3% over the last quarter, rents Downtown declined 4.8% over the last quarter, off 10% percent since the start of the year.

Two key forces keeping Downtown rents low are Shadow Space (space vacated by major corporations who have not yet listed the space for rent as doing so would require them under the tax laws to recognize the loss in the current year)” in the sublease market and geographic diversification. While shadow space is being reduced as corporations are withdrawing it from the market for future expansions, there still remains a considerable amount of space yet to be listed. For example, Wachovia Securities, which acquired Prudential last winter, finally listed 480,000 square feet at 199 Water Street on the sublease market and plans to put up for sublease between half and all of its 1.3 million square feet at 1 New York Plaza by 2005.

Nevertheless, overall Downtown vacancy rates are declining as a result of building conversions from office to residential and the attraction and retention of firms due to downtown benefits. However, new construction such as 7 World Trade Center (and the soon to be started Freedom Tower) will bring more product to the market and should increase vacancy rates given current demand.




Residential Conversions:
  • 20 Exchange Place and 67 Wall Street were bought by Metro Loft Management for possible conversion from office to luxury residential.
  • 100 Maiden Lane was sold for $57 million and will be converted to residential when the current owners, Cadwalader Wickersham & Taft move into the World Financial Center.
  • Many other buildings have been converted in Soho, Chelsea, Flatiron and soon the Garment center.


Building Sales:
The building sales market remains robust with sale prices for Class A office towers at record highs for a number of reasons. Interest rates are low so that buildings are trading slightly above the bond rates. Prices of alternate uses such as residential or hotel conversions are high. And, the low cost of capital abroad further increases the amount foreign buyers are willing to pay. For example, German pension funds have been major recent investors due to their low cost of capital. Some recent transactions include:
  • The GM building for $1.4 Billion ($800/Square Foot), a new building sale price record.
  • 425 Lexington Avenue for $335 million or $502 per square foot.
  • 2 Park Avenue for $292 million or $303 per square foot.
  • 499 Park Avenue for $147.8 million or $518 per square foot.
  • 5 Hanover Square for $55.8 million or $175 per square foot.
  • 1185 Avenue of the Americas, for $321 million or $303 per square foot.
  • Mc-Graw Hill sold its 45 percent stake in 1221 Sixth Ave. to SL Green for $450 million, or $394 per square foot.
  • Herald Towers residential floors for $115 million.


Vacant New Space:
  • 850,000 square feet at Boston Properties' Times Square Tower, left in the lurch by the collapse of the original anchor tenant Arthur Andersen. So far, leases have been signed for about 300,000 of the tower's 1.1 million feet.
  • 700,000 square feet at Macklowe Properties' 340 Madison Avenue.
  • 180,000 square feet at Vornado's Bloomberg L.P. headquarters tower at Lexington and 59th.
  • 140,000 square feet in the new glass curtain-wall addition on top of Vornado's 640 Fifth Avenue.

More commercial space will be added to the market over the next few years as several projects currently under construction are finished and planned projects are undertaken.

Currently under construction:
  • 7 World Trade Center, a 1.7 million square foot building.
  • The Hearst Tower, an 856,000 square foot office tower at 959 Eighth Avenue.


Planned commercial buildings:
  • Bank of America’s 2.1 million square foot building on 42nd Street and Sixth avenue.
  • The New York Times Headquarters, a 52-story 1.54 million square foot building on Eighth Avenue opposite the Port Authority.
  • InterActive Corporations new 165,000 square foot headquarters building in the Chelsea district designed by Frank Gehry. Construction is scheduled to begin by early 2004.
  • Pfizer has a deal pending to build a 2 million square foot skyscraper at 708 First Avenue.
  • Freedom Tower.

Rezoning:
A key development over the past year has been the proposed rezoning of the Hudson Yards in Midtown West. The Hudson Yards planning area extends from West 28th Street on the south, Eighth Avenue on the east, West 43rd Street on the north, and the Hudson River on the west. Under today's zoning, only seven million square feet of new development is projected over the next 20 years. With the rezoning over the next 20 years the area would be transformed with up to 30 to 40 million square feet of new offices, hotels, housing, and expanded exhibition and sports facilities.


Other Markets:

  • Harlem is now more expensive than SOHO, Tribeca and Chelsea as many non-profit companies, as well as Columbia University continue to seek space.
  • Long Island City offers affordable back office locations with net effective rents at under $20/RSF for great office space, making the area a very attractive site for back offices. For example, MetLife is planning and has started to move 1,700 jobs to the area.

Year End Office Market Highlights
  • Total Class A vacancies increased slightly from 24.96 million RSF to 27.17 million RSF, while Total Market vacancies increased from 45.50 million RSF to 47.65 million RSF.
  • Total Direct Lease availability increased from 31.51 million RSF to 36.86 million RSF, while Total Sublease vacancies continued their two year declined falling to a new low of 10.79 million RSF from 13.99 million RSF at the start of the year.
  • Midtown availability increased from 22.83 million RSF to 26.92 million RSF, while Midtown South and Downtown vacancy rates declined from 9.87 million RSF to 8.95 million RSF and from 12.81 million to 11.78 million RSF respectively.
  • Total Vacant space in Midtown increased as the rise in Total Direct Lease space availability from 15.37 million RSF to 20.08 million RSF outweighed the fall in Total Sublease availability from 7.46 million RSF to 6.84 million RSF.
  • Midtown South Direct Lease availability increased from 6.67 million RSF and 7.09 million RSF, while Sublease vacancies declined from 3.20 million RSF to 1.87 million RSF.
  • Total Downtown vacancies fell as the decline in Sublease availability from 3.33 million RSF to 2.08 million RSF outweighed the increase in Direct Lease space from 9.48 million RSF to 9.69 million RSF.

Legend

RSF-Rentable Square Feet
SF- Square Feet

January 2004 Graphs and Statistics
January 2004 Graphs and Statistics