The Empire State Building has always stood tall, but as a business venture, the iconic building has wavered a bit over the last several years as tenants fled its outdated interiors.
After a battle over management of the building was resolved this summer, leaving CB Richard Ellis as leasing agent, the world-famous skyscraper has started to undergo a complete overhaul to compete in the red-hot Midtown office market.
It’s an overhaul brokers say will pay off in the near term.
Earlier this year, the Empire State Building was in trouble. It reportedly reached an 18 percent vacancy rate due to poor management. The 75-year-old building had an ancient infrastructure and cramped offices, making it hard to compete with modern buildings. Asking rents in the Empire State were almost 25 percent below the average asking rent in Midtown of $48 per square foot at the time.
But Anthony Malkin, president of Wien & Malkin, which manages the building, says occupancy levels are now at 90 percent and asking rents are in the $50s per square foot.
Several changes — including the leasing team, new technology, new office space plans and even new windows — are shifting the perception of the building as a grand old man in a competitive market.
Until August, the Empire State was one of a handful of buildings managed by Helmsley-Spear Inc. Since then, Wien & Malkin took the management reins after first working in a supervisory role, concluding a bitter backroom scuffle. The blandly worded announcement that the Malkin organization and the famously litigious Leona Helmsley had “resolved all disputes” with Helmsley-Spear — battles that had raged in and out of court for years — cleared the way for moving forward.
Malkin says recent progress at the Empire State Building is a result of new management. Almost immediately after management changed hands, CB Richard Ellis signed on to handle leasing for the 2.8-million-square-foot, 102-story building. CBRE tri-state president Mitch Rudin leads the leasing team; first vice president Steve Eynon is the new leasing director.
The firm’s strategies to lure new tenants are still under wraps, but that hasn’t stopped speculation about how CBRE will make the Empire State more competitive.
“They are addressing a lot of the issues,” said Richard Economou, senior vice president of Equis Corp., a commercial brokerage. “The Empire State is a high-profile building, but New York City is a high-profile town.”
The Empire State layout is notoriously ancient, supported by columns that aren’t particularly appealing to companies used to customized floor plans. This is one of the building’s greatest hurdles, as are small office spaces, other brokers say.
Economou says CBRE and the Empire State are working on pre-built floor plans so tenants can see what they are getting.
“The efficiency of the floor plans focuses on density in a market where dollars per square foot are getting high,” he added.
According to Marc Miller, principal of Miller & Partners, CBRE is also consolidating tenants on some floors with multiple small spaces to open up whole floors for larger lessees.
Miller says the Empire State is offering raw space to tenants willing to do improvements on their own. “Any overages would be the client’s responsibility,” Miller said. “It’s for tenants that want to go in for the long term and put their stamp on it.”
Miller says Wien & Malkin are offering $40-a-square-foot tenant improvement contributions in a building where rents per square foot are in the high $40s or low $50s.
“It’s a pretty good contribution,” he added, but tenants must consider the age of the structure in building out their space, combating outdated sprinkler systems, old duct work, column repairs and possible floor leveling in some areas, Miller says.
The pre-built floor plans are intended to address some of those shortcomings.
“If you have an 8,000-square-foot space and a logical layout, they will come,” Miller said. Economou says the asking prices on pre-built floor plans are attractive compared to the rest of the Midtown market. The Empire State has also tackled another issue that deters prospective tenants — tourist traffic to the observation deck that jammed the commercial tenants’ lobby.
“The Empire State Building has rerouted all the pedestrian traffic that goes immediately to the second floor,” said David Hoffman Jr., executive managing director at Colliers ABR. “So the sea of tourists shoulder to shoulder is gone, which gives the lobby a different feel.”
The elevators in the building are another concern, Economou says. “Transportation is always an issue in an old structure, especially one this historic,” he said.
A reported $100 million has been spent on improvements, says Malkin. Elevators, elevator lobbies, new windows, bathroom renovations and new security systems are part of the long list of what’s being improved, he added.
Malkin disputed reports that the building had a vacancy rate of 18 percent earlier this year, saying it was closer to 11 percent. Major announcements about renovations are scheduled for January, he added.
The building’s iconic status prompts other concerns besides throngs of visiting out-of-towners. Since September 11, security has assumed even greater importance.
Miller had one client leave the Empire State over concerns about bomb threats and alarms. But Hoffman says perception that it will be a target for future attacks is the building’s major problem and is something that can be fixed going forward.
“At some point, people’s perception of terrorist threats will fade, and it will have a low vacancy rate,” Hoffman said. “The building has a number of issues, but none are more significant than the issue of perception.”
Some brokers predict a quick turnaround for the Empire State’s leasing activity because there’s almost nowhere left to go in Midtown.
“They are spending some serious money that will save tenants dollars and in turn be an economic advantage,” Economou said. “All indicators say it’s a competitively priced market, and CBRE does great agency work.”
Hoffman added that he, too, is bullish in his predictions for the Empire State. “It’s something so uniquely New York.”