Empire State Building still in “empty state”

In hindsight, an early nickname for the Empire State Building seems more like an omen.

The building earned the moniker “Empty State Building” in the 1930s, when the city’s real estate market crashed after a boom decade. Built in 1931, it was one of several newer buildings that contributed to the city’s 92 percent increase in inventory during the Great Depression.

Though the market cycled through ups and downs after that, the “empty” epithet has continued to haunt the Empire State Building. Even amid the boom, in 2006, the landmarked building’s vacancy rate reportedly stood at 18 percent. Today, the building, at 350 Fifth Avenue at 34th Street, has a vacancy rate of 22 percent, according to Fred Posniak, senior vice president at W & H Properties, the building’s manager.
Note: Correction appended

About 45 percent of the current vacancy is intentional, with space being held off the market for renovation, Posniak said. That translates to about 270,000 or 280,000 of the building’s 600,000 vacant square feet. The rest of the vacant space, about 320,000 square feet, is on the market.

Several brokers contacted for this story refused to comment on why the space remains unleased, for fear of damaging relations with W & H.

The building will “relaunch” at the end of the month, after a $550 million renovation that is in part intended to draw in a different type of tenant, Posniak said.

The building is known for small offices — with over 800 tenants at one point, according to Posniak — but has been making efforts to change that image by creating larger office spaces. Thirty thousand square feet worth of prebuilt office space has recently been completed, Posniak said.
Note: clarification appended

Some tenants are already biting.

In July, the Federal Deposit Insurance Corporation signed a lease for 100,000 square feet at the building and will relocate there from 20 Exchange Place. Construction firm Skanska, also attracted to the building by green renovations such as insulation and window retrofittings, is another new tenant. Coty, the world’s largest fragrance company, leased 90,000 square feet at the building in July 2008.

The renovation, which has been in progress for several years, “very much has put [the building] on the radar screen” of potential tenants, Posniak said.

But the renovated space is still coming online amid a recession, and rents are lower than what they would have been a year ago, Posniak said. A few leases have recently been signed for around $50 per square foot that last year would have gone for $60, he said.

Rents at “less prominent” Class B buildings in the neighborhood are currently around $30 to $40 per square foot, said Peter Braus, executive vice president at Sierra Realty, who is not affiliated with the building. But there are few exactly comparable buildings to the Empire State Building, Braus said, because of the building’s height and features.

To bring tenants to the building, W & H has also had to offer more concessions, including building spaces to suit tenant needs, Posniak said. The company has paid brokers’ commissions on signing since before the current downturn began.

“We’re not achieving the higher rents that we used to achieve… a year ago,” Posniak said. But “the interest is still there, and we are still doing deals. We have activity [and] we’re not short-term or merchant owners. This is a long-term scenario.”

Have a tip? E-mail Sara Polsky at sp@therealdeal.com.