Transcript
Automated transcript · uncorrectedGood morning. This is Mike Stoler for the Stolar Real Estate Report on the CATS Roundtable. What’s happening in the office market today in New York City? I don’t know the answer, so I’ve brought together today Brett Shannon, who is the senior vice president of a group in the agency group Business.
Correct, that’s right, and that CBR Agency.
Group, CBR Agency Group, So tell me what the agency group is. Sure?
The agency group at CBUR in New York group about ten professionals that specifically focuses on representing landlords in New York City in a leasing market with a special focus on larger scale repositionings lead strategies. So rather than be engaged to represent a building that may have one or two suites or floorable, were typically engaged to help formulate
strategies for anchor tenant lease ups, major renewal negotiations, new construction design, redevelopment design, and strategy. It’s a fascinating place to be because we get to work with a lot of incredible real estate professionals in their own right as our clients.
Both as owners and as tenants.
Correct, Yeah, I mean we primarily focus on ownership representation, but There’s no doubt the engagement that we have with those anchor sized tenants within New York City is an interesting sort of lens into the overall market.
So which is the best market today? Are we talking Hutson Yards for the pricing, yes, as an owner landlord? Or is it Midtown Manhattan? Yeah?
I think what’s fascinating about the market right now is just how bifurcated it is. Obviously, you see a lot of sort of doomsday headlines that are focused on macro trends. Oftentimes they don’t capture what’s really happening on the street within the market. And so, for example, I think the core of Midtown right now is the strongest it’s been
in my career. I’ve been around CB since two thousand and nine. But in particular, you know, Park near Grand Central core locations are performing the best they ever have. There’s more demand for that space than there’s been and we’re seeing real increase in rental rates as a result.
So what are the rental rates in the Park Avenue?
Yeah, depending on the product, they’re well into the triple digits right So at you know, new construction like one Vanderbilt or four to twenty five Park Avenue buildings that were delivered since twenty twenty one. They’re now achieving rents in excess of two hundred dollars per square foot. The average asking rent in Midtown right now is about eighty
bucks a foot, So it gives you a sense of just how much runway those buildings have had at the scale of the demand, the profile of tenant to which they appeal. But you know, even the typical older existing stock that’s been renovated and repositioned along Park Avenue, Madison Avenue, Fifth Avenue, they’re all seeing healthy rents well into the
triple digits.
Is it it opportunity for a tenant in this market.
It’s an opportunity to potentially secure the space that brings their employees back to work.
So what is it going to secure the space to bring the employees back to the way.
Yes, So I think what we’ve seen is going into the pandemic, there was what we’d call a flattening of geography around Manhattan, where tenants were primarily focused on attracting the best product and they didn’t care quite as much about the location where that office was. What we’ve seen is coming out of the pandemic, and in particular when
you’re competing with work from home, having what they call a one seat commute and making it as easy as possible to get to work for talent and then allowing that talent to go work in the best buildings and environments is really what it’s taking to attract the employee base that the most discerning companies want.
And I think.
Along with that sort of shift in demand back to core Midtown, what we’ve seen is in the pre pandemic market, much of the office market was being driven by big tech in a low interest rate environment that was focused on headcount growth and expansion and a certain type of product.
And what we found is the tenants coming out of the pandemic with the strongest return to work metrics are the more traditional industries, in particular private financial services, banks, law firms, and those are the companies now that are the most active in the market and are competing to secure the highest quality space and a lot of it
is about attracting, retaining talent and providing the best environment for their employees to work in.
What about Hudson Yards, I want to talk about, yes, sure, pecifically the related properties and the other properties in the neighborhood and including Brookfields.
So I think if you look at some Manhattan West is Brookfields is Brookfield’s campus on the far west side that’s primarily anchored by new construction towers, and that’s just slightly east of Related’s far west side huts and yards. Right, Both of those projects have been extraordinarily successful, and it’s a testament to the quality of the product that they delivered.
And if you looked at the tenant rosters that they’ve attracted, you know, the most recent building to deliver over at Manhattan West to Manhattan West, it’s a combination of KPMG, d E Shaw, Clifford, Chance Cravath, Right, it’s an incredible roster of clients that I think speaks to the excuse me tenants, I think speaks to the quality of what
they provided. But what’s interesting to me about the success that those buildings have had in certain the rental rates that they’ve achieved is if you also look at the capital markets landscape going forward, we’re in an environment right now where it’s really hard to justify building and being able to achieve the rents required to break even on
new construction delivery. So the pipeline of new construction within Manhattan, which had been really strong from twenty thirteen going forward. Right you had delivery of the World Trade Center and millions of square feet downtown, you have delivery of Hudson Yards, you had delivery of Manhattan West one, Vanderbilt and other major projects like that is virtually dry right now. There’s
no pipeline at all for a new construction going forward, and so everything that was delivered in recent years has been spoken for by the highest quality tenants.
Okay, what about the forty second Street with the higaots going through.
Sure, Yeah, that’s one seventy five Park Avenue. That’s an incredible site. You know, the scale of that building is three million square feet. And actually there’s a number of projects that have been that have sites in direct proximity to Grand Century of one seventy five Park, three forty three Madison Avenue, which is Boston property site. The Rudents
have four to fifteen Madison Avenue as well, a boutique building right there. The difficult the difficulty for a building like one seventy five Park at three million square feet is again in this environment, you need an anchor to step.
Up right and make that rob.
Correct correct, and then TD Bank stepped up. They anchored the site and they are off to the races from there. For a building like three P forty three Madison, that’s a nine hundred thousand square foot building they just brought Enorgious as an as an equity partner. That feels like the type of site where you could.
Bring in, you know, a.
Two hundred and three hundred thousand square foot tenant to anchor it, as opposed to a million square foot tenant, which is what I think something like one seventy five park would require. So, you know, it’s just an It’s an interesting time because I think we’re believers that if the product existed, there would be demand for it. However,
you know, it’s hard to get tenants right now to take that level of construction risk when you’re in an environment with the amount of availability that New York has. I’m optimistic that a number of those projects will figure out a way to move forward and that when they do deliver, they’ll be delivering into an environment and market
where they’re competing with virtually no peer competition.
What about Lower Manhattan, It’s not doing that well right Lower Manhattan?
You know, it’s in a period of time where the World Trade Center sites, which were all new construction delivered and also achieved you know, blue chip tenant rosters. Those are interesting buildings because everyone thought that they’d end up going, you know, leasing to larger corporates and banks, and what they ended up attracting was this amazing roster of sort
of technology mixed creative tendencies. Yeah.
And and what we found though is, you know, the tech sector overall has probably had the weakest sort of return to work initiatives and traction. And so. The direct space downtown right now is competing with sublet space in the best buildings within that market that’s built ready to go, furnished, doesn’t require coming tenants to spend much capital to secure the space, and is as subleases
ours add a discount to direct to direct space. The majority, I would just say, the majority of the activity down there, which there is activity, is just focused on those options right now that are built, furnished, ready to go out a discount, and they’re doing deals you know, in the fifties and sixties per square foot for spaces that we’re
trading in the eighties per square foot during the pandemic.
With a short period of left. Let’s talk about Williamsburg of their trees.
Yeah, it’s an incredible site. We represent the refinery. It is new construction, but it’s new construction within the wrapper, if you will, the facade that was the old Domino Sugar refinery site, and the building was designed by Vishan Chakra Bardi. It is all glass and steel, all electric, and it’s this amazing common nation of new construction set
back within an existing building that provides all of the benefits of new construction but has all of the character.
Of a real, authentic New York landmark. And what’s fascinating there right is we can do deals depending on the floor you know, in the seventies per square foot, and that’s prior to getting potential municipal incentives that are available.
And if you think about the types of rents you need right now to justify new construction in Manhattan, you know, as mentioned before, it’s close to two hundred dollars per square foot. So we think the value proposition within Williamsburg for the refinery is hard to beat, and we’re optimistic that we’re going to have really strong LEAs contraction. They’re
moving forward.
I wish we had more time to talk. Well, maybe have you in the future. I’d like to thank Brett for being here. See you next week.
Thanks very much, I really appreciate it.
Sunday, May 5, 2024
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