In the last quarter of 2024, Manhattan's office market witnessed a significant surge in leasing activities, particularly in the prestigious Plaza District. Leading the charge, the district recorded a staggering 3.26 million square feet of leased office space. The Citadel's lease of 504,000 square feet at Brookfield's 660 Fifth Ave. marked one of the major deals in the area. As companies seek to establish corporate headquarters, unique hospitality-like amenities are driving fierce competition for office spaces at locations such as 10 Grand Central. This trend reflects a broader transformation in the office market landscape, with demand outpacing supply and exceptional spaces commanding premium rents.
The Plaza District's appeal remains strong, attracting high-profile tenants and substantial investment. At 10 Grand Central, Aby Rosen, the building's owner, has strategically positioned the property to attract companies desiring a corporate headquarters. The building's enhanced amenities have sparked bidding wars, demonstrating the increasing importance of offering unique and desirable workspaces. According to Howard Fiddle of CBRE, 10 Grand Central is poised to become a major player in the market, underscoring its competitive edge.
"Tenants want amazing spaces and want to enjoy going to work and if you don’t make it special and distinctive it won’t lease. But if you do, you will get high rent," said Deitelzweig.
The demand for prime office space remains robust, although the limited supply challenges prospective tenants. Scott Rechler of RXR highlighted this trend, emphasizing that while demand is strong, the supply of suitable office space is constrained. Despite these limitations, CBRE has successfully secured six floors at Lever House for its global financial headquarters, designating two as flex space for its top executives.
"The story of 2024 was how well core Midtown has done but as companies [seeking space] realize what they want doesn’t exist, the demand will broaden to other submarkets," explained Howard Fiddle of CBRE.
Rental trends across Manhattan reflect the current market dynamics. The average citywide rent hovers around $77 per foot; however, downtown Manhattan sees lower demand with an average asking rent of $57.03 per foot according to Colliers. In contrast, premium locations like the trophy One Vanderbilt command nearly $300 per foot when available. Such figures illustrate the pronounced flight to quality that Scott Rechler of RXR noted earlier.
"This is obviously a changing market, the type of workplaces [people] want to be in, the neighborhoods they want to be in, the type of buildings they want to be in," commented Scott Rechler of RXR.
"There’s a flight to quality," added Scott Rechler of RXR.
The new 125 W. 57th St., developed by Alchemy-ABR, is poised to attract interest due to its views of Central Park. Meanwhile, a joint project by RXR, TF Cornerstone, and DFO Management near Grand Central Terminal boasts 2.8 million square feet of space. Yet, it requires a significant office anchor to occupy its remaining 2.1 million square feet.
Lever House at 390 Park Ave. recently closed deals for two full floors at rents exceeding $200 per foot. A record number of 28 deals surpassed $200 per foot across Manhattan, with JLL reporting 212 deals above $100 per foot. This trend underscores the competitive nature of acquiring premium office spaces.
"Build it and the tenants will come," remarked an anonymous broker.
The current market environment emphasizes the necessity for landlords to innovate and enhance their offerings to attract tenants. Adam Henick of Current Real Estate Advisors highlighted that while cosmetic upgrades can add value, structural elements such as columns and window sizes remain unchanged.
"You can add amenities and you can refresh the lobby, but you are not removing columns or making the windows larger," noted Adam Henick of Current Real Estate Advisors.
Amidst these developments, Doug Middleton of CBRE praised the ongoing transformation and success at niche properties like those developed by Nicky Rabina.
"The building is on fire and a complement to Nicky Rabina and how great a developer he is," said Doug Middleton of CBRE.
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