Manhattan office spotlight: office development down even as leasing volume has increased

By Atticus O’Brien-Pappalardo

A recent survey from Partnership for New York City found that employers anticipate 29 percent of employees will have returned to the office by the end of July, and that by the end of September that number will jump to 62 percent. (That survey was made before the significant impact of the Delta Covid variant were felt. Twitter last week announced it would re-close its Manhattan office.)

As companies consider their transition back to office life, PincusCo is taking a look at plans filed for new office buildings in Manhattan so far this year to gain insight into the industry’s outlook on the future of the city’s workplace.

So far this year there have been three plans filed for new office buildings in Manhattan, which total just under 750,000 square feet of new construction, with 550,922 square feet filed for in Q1 and 198,948 in Q2.

The largest plans were from Rabina Properties, who on January 4, filed a permit application for construction of a 896-foot tall, 70-story, 452,134-square-foot mixed-use office building with 98 residential units at 520 Fifth Avenue in Grand Central. According to the plans, 340,380 square feet will be used for commercial space.

The second largest office plans were filed by the watchmaker Rolex, on June 23. The permit application called for the construction of a 155,883-square-foot commercial office building at 665 Fifth Avenue in the Plaza District.

The third plans were filed by CBSK Ironstate, a partnership between the Shnay family’s SK Development, Charles Blaichman’s CB Developers, and Ironstate Development, on January 7. The plans called for construction of a 98,788-square-foot office building at 360 Bowery in Noho.

There are also plans in the works that have not been officially filed yet with the New York City Department of Buildings. For example, Rudin Management is currently seeking special permits and chairperson certifications to facilitate the redevelopment of 415 Madison Avenue in the East Midtown neighborhood. According to the city’s Zoning Application Portal (ZAP), the application is being reviewed by the Community Board, Borough President, and City Council between June 7 and August 17.

For context, PincusCo looked at all new building plans with a proposed occupancy of B (Business) above 20,000 square feet filed with the NYC Department of Buildings since the start of 2016.

Since the start of 2016 there have been plans for nearly 15 million square feet of new office buildings filed in Manhattan. The average square feet of office space filed for per quarter over the period was just north of 787,000 square feet, while the average number of plans filed per quarter was just over two.

It is important to note that those averages are greatly impacted by four large projects, the only projects greater than one million square feet in size out of the 45 plans filed during the period examined. Furthermore, if those four plans (Related Companies’s 2.2 million square foot 50 Hudson Yards tower, Tishman Speyer’s 2.2 million square foot supertall known as The Spiral, JPMorgan Chase’s plans for 270 Park Ave, and Brookfield’s plans at 401 West 31st Street) are removed from the analysis, the square foot average drops to 358,526 square feet per quarter. So, while office development has been lower than historical averages so far this year, specifically in the second quarter, it may not be as significant as it appears at a glance.

This year’s three plans came as Manhattan’s office availability reached record highs over the last two months, according to a report from The Real Deal. With that being said, the volume of leasing has started to increase, according to brokerage reports.

Lori Albert, Director, Research with Cushman & Wakefield, spoke to PincusCo about the current outlook on office leasing throughout the city, explaining that while leasing momentum has continued to build, 2021 new leasing will likely remain below historical averages.

In Albert’s words, “Tour activity is picking up and we expect leasing momentum to continue to build, especially when the pending deals we are hearing about actually close. However, 2021 new leasing will likely remain below average, as we would need about 6.5 million square feet a quarter for leasing to normalize to historical averages and barely 5.9 million square feet has been leased through the first half of the year.”

She also noted that the pandemic has caused relatively more leasing in Class A buildings, “…as 81% of leases signed were in Class A assets from Q2 2020-Q2 2021, compared to an average of 69% from 2015 to Q1 2019. Most tenants want to be in quality space in a good location.”