The movement by tech companies and start-ups to pre-war buildings is causing an unusual bump in rents, with some side-street buildings in the Flatiron District garnering more cash than larger and more valuable avenue stock in the Penn Plaza area further uptown.
At its Penn Plaza building at 463 Seventh Ave., on the northeast corner of West 35th Street, Adams & Co. has a head-scratcher.
The real estate company created a sleek new lobby, built new destination dispatch elevators, added a new cooling tower, hired 24/7 security, installed tenant-controlled air conditioning, bought new operable windows and earned a WiredNYC Gold designation.
But a large sublease of 95,250 square feet on the 16th to 20th floors, which includes spaces that range in size from 16,750 feet to 21,750 feet, is not getting the activity Adams would like, despite being able to cut a deal in the mid-to-high $40s per square foot and offer a work letter that allows tenants to build out and customize their offices.
According to David Levy, a principal with Adams & Co., office leasing is just not seeing a “feeding frenzy” north of 28th Street. But in the Flatiron District, Adams’ non-fashion buildings are seeing pricing “they never dreamed of,” with asking and taking rents in the $60s per square foot, even in their side-street buildings.
“It’s not just that building,” says Levy of 463 Seventh Ave. “The pricing on the side streets is higher than the avenues.”
The trend is real. According to Tristan Ashby, Director of New York Research at JLL, the Flatiron side street buildings are outperforming those on avenues in the Penn Station/Garment District area.
“There are just not many options around Flatiron,” says Ashby. “My own sense is some of those side streets in lower Penn/Garment are doing well because they feel like Chelsea. If you’re on a side street in the mid-thirties, you can still meet your friends at the Ace Hotel.”
In that Chelsea/Flatiron area, demand has been so high from tech tenants it prompted the Kaufman Organization, which owned other area office buildings, to go on a buying spree. They bought several former Ring portfolio buildings at 15 and 45 W. 27th St. and 19 W. 24th St. that had been badly neglected, vacant and sorely in need of redevelopment. After renovations, asking rents now run from the mid-$60s to the mid-$70s.
Savanna similarly purchased two adjacent and vacant loft buildings at 245 and 249 W. 17th Street in 2012 for $75.75 million and began a nearly $30 million redevelopment. It quickly leased most of the retail to Room & Board and most of the office space to Twitter in 2014 for its city headquarters as a rent reported in the $70s per foot or more. Savanna sold the now cash flowing building for $335 million to American Realty Capital’s New York REIT, which is now putting it back on the market.
