A bit of wind has gone out of the city’s sails, but downtown areas are undergoing a resurgence.
Sky-high land, apartment, office and retail pricing, a strong dollar, a snow-slammed winter, plus enough hotel rooms to house each homeless person nearly twice over, have given market players a chance to catch their breath and rejigger their priorities.
“I would say ‘breezy’ is a better word,” declared Peter Kalikow, president of HJ Kalikow. His office tower at 101 Park Ave., in the Grand Central District of Midtown, signed over 250,000 square feet of office tenants in the first quarter of the year.
“It’s better than it was, but the fact of the matter is that it’s tentative,” said Kalikow of the market. “We had to fight for every deal.”
Citywide, Colliers International found the average rent for the first quarter of 2015 was $67.62 per foot. Midtown averaged $76.15, with $62.02 per foot in Midtown South and $55 in Downtown. While the highest rents still average $92.57 per foot in the Plaza District, some Meatpacking rents have hit $125 per foot and going up.
Generally, the Midtown South rents of $69 to $74 per foot are a highlight no one would ever have thought, “in your wildest dreams,” said Joseph Harbert, president of Colliers International.
That’s why Midtown South’s historical position as the ‘value play’ has given way to Downtown, and another reason creative tenants are making it their home.
Starrett-Lehigh Building owner, Scott Rechler, CEO of RXR Realty, said rents of $30 a foot at the Chelsea property have risen to asking rents in the $60s.
This has priced out its architect tenant, Bjarke Ingels Group (BIG), which wants to be in creative locations to attract employees.
After BIG leased at 61 Broadway, Rechler bought it.
“If you want to compete in New York you have to have a conviction as to where rents are going to go and what tenants want,” said Rechler at a recent Real Estate Board of New York (REBNY) forum.
Other firms that have been priced out of Midtown South and the Meatpacking District are looking at less traditional locations, and many, like BIG, are now heading Downtown. Andrew Peretz, executive managing director Newmark Grubb Knight Frank, who represents One State Street Plaza, said, “Companies are more interested in the experience and potential to brand the company with the space. They want to pick space with great views and lots of light.”
News that major corporations are considering a move from Midtown to a new 2 World Trade Center has reenergized the market and those who want to see all the fences down around the 16-acre site.
Asking rents are also rising because new buildings at the World Trade Center and Hudson Yards are priced higher, as are those that have new capital partners or are newer acquisitions that are being repositioned. “It will make it very difficult for those buildings to respond to the marketplace,” said Andy Roos, vice chairman of Colliers International.
Colliers counted 15 building sales that added up to $5.2 billion in the first quarter, with all-time records for average price per square foot. These included $1,280 per foot in Midtown and $1,077 per foot in Midtown South.
“There seems to be little to no hesitancy on the part of investors to pay up to get the desired property, as locals continue to compete with international investors in a global race for quality, safety and still some relatively attractive yield,” said investment broker Douglas Harmon, of Eastdil Secured, who marketed many of the billion dollar-plus sales.
But pricing corrections may eventually occur for the rental of retail spaces on key streets in SoHo and along areas of Madison and Fifth avenues. It doesn’t mean retailers are merely sitting around, or that a competitor won’t pay the going freight to get their desired space.
Tenants are making offers that relate to the business they think they can generate, explained Karen Bellantoni, executive vice president of RKF. “There are also landlords in deal-making mode who are interested in quality tenants,” Bellantoni said.
As several restaurants are making offers for each space where she is the agent, she is worried. “I find when the restaurants are looking for space we are due for a correction,” Bellantoni quipped.
Avison Young’s Principal and Executive Managing Director of Retail, Jedd Nero, is also concerned. “We are seeing stratospheric numbers and everyone shakes their head and says, ‘How far can this go?’ ”
Nevertheless, international retailers are still excited to come to the city and stake out store locations.
Many of the large blocks available around Times Square and on Fifth Ave. between 42nd and 49th streets may also be divided to be digested. These include the 100,000-foot Toys “R” Us space at 1514 Broadway and the 65,000 feet of retail at 1535 Broadway where Vornado Realty Trust is already making smaller deals.
“The superstores are getting smaller as the neighborhoods get pricier,” said Faith Hope Consolo, vice chairman of retail at Douglas Elliman. “However, designer and apparel flagships are getting larger.”
At the REBNY forum, noted retail dealmaker Jeff Sutton, president of Wharton Acquisitions — who owns many properties in areas that include Times Square, Fifth and Madison avenues and SoHo— said they have created smaller stores in some locations because tenants will pay more per foot for the petite spots.
Additionally, the CEOs, Sutton explained, “can look beyond the x’s and o’s” to launch a brand in a place like Times Square and realize the “rent will be free in that store” because the signage is seen by millions. “The goal is to have iconic brands in iconic locations … the goal is to see beyond the store,” Sutton said.
Flatiron/NoMad is also becoming an iconic location as newer and hipper retailers replace trinket outlets. “Once the shlock is out it’s not coming back,” declared Jeff Karp, head of RP Miller Commercial, who represents the retail space at 212 Fifth Ave.
Nearby, thanks to years of dealmaking by Robert Knakal, president of Cushman & Wakefield, and colleague John Ciraulo, the city’s first Virgin Hotel is rising on Broadway at W. 30th St., and a new apartment tower is being built on the adjacent Ave. of the Americas parcel.
The 440,000-square-foot, 32-story hotel is being developed by the Lam Group and will include 460 hotel rooms towering over 65,000 feet of distinctive retail space to be known as the Nomad Center — right across the street from the trendy Ace Hotel. The retail is being represented by a Newmark Grubb Knight Frank team.
The adjacent 24-story, 52-unit residential building was designed by FXFowle for Kenneth Horn’s Alchemy Properties — the same developer creating a condo conversion at the top of the Woolworth Building.
Citywide demand for hotel rooms is up 3 percent, said Chris Heywood, a spokesman for NYC & Company, the city’s tourism bureau. The 56.4 million tourists last year are now ramping up towards an expected street-clogging 67 million by 2021.
That’s one reason the current 103,000 hotel rooms is growing to 111,000 by the end of 2015, with a pipeline to 125,000 rooms by 2017.
Many are luxury properties, Heywood added, ticking off the just-opened Baccarat Hotel, and the May opening of the New York Edition in the Clock Tower by Madison Square Park as highlights.
A slight drop in occupancy from 81 to 79.5 percent and an average daily room rate fall from $241 to $233 per night from January through March is being blamed on mounds of snow and a lack of special events.
Along with tourism, the city is encouraging the bio-tech sector. The development of a third building at the Alexandria Center for Life Sciences at First Ave. and 29th St. will bring available lab space and offices to 1.1 million square feet.
John Cunningham, senior vice president of Alexandria Real Estate Equities, which owns the complex, said, “We are bullish on the market and excited to advance the third building and pursue other opportunities in Manhattan.”
