The Real Deal New York

Leasing at World Trade

Building experts expect the pace to pick up in 2013

November 01, 2012
By Guelda Voien

While last year brought a 1.1 million-square-foot lease to 1 World Trade Center, leasing at the World Trade Center site — and Downtown in general — has been considerably slower in 2012.

The closely watched negotiations that would have put massive law firm Chadbourne & Parke into 300,000 square feet at the tower fell apart abruptly in March. And while the long-stalled General Services Administration lease was finally inked in July after five years of negotiations, the agency took just a fraction of the 900,000 square feet it was originally considering.

In fact, since April, no additional leases have been announced for 1 World Trade — now New York City’s tallest tower at 105 stories.

And so far only two leases — for 600,000 feet for the Port Authority of New York and New Jersey and 600,000 square feet for the City of New York — have been inked at 4 World Trade, which is slated to come online next year.

Still, there seems to be activity in the pipeline.

The New York Observer reported last month that advertising giant WPP’s subsidiary Group M has been browsing for about 500,000 square feet at 3 World Trade, where it is considering a deal to become an anchor tenant. And one broker told The Real Deal that an unidentified law firm was considering the anchor spot in 4 World Trade, while another broker hinted that digital darling Facebook and Nielsen Media Research were looking in and around the building.

Nonetheless, construction at 2 World Trade — which, like towers 3 and 4, is owned by Silverstein Properties — will halt at street level if an anchor tenant is not signed, a source said, confirming previous reports. Meanwhile, the height of 3 World Trade as well as the pace of construction will be determined by tenant demand, as has been reported. The building has temporarily topped off at seven stories.

Rents at these towers tend to be slightly higher than those at 1 World Trade — which hover at around $75 per square foot, according to sources, because of larger floor plates and slightly easier transit access.

The bulk of space at 1 World Trade will, of course, be occupied by magazine publisher Condé Nast, which signed an initial lease in May 2011, and upped its total space by 140,000 square feet, to 1.2 million square feet, earlier this year.

But now, 1 World Trade, which will still have another 1.1 million square feet to lease up when the balance of the tower hits the market, is starting to gear up for smaller leases.

“We are working with an architect to subdivide” at least one floor, but possibly more as needed, said power broker Tara Stacom of Cushman & Wakefield, who heads up leasing at the building.

 

The power of one

The lease signed by the GSA — the federal agency that manages and supports other government agencies — accounts only for about one-tenth of the building.

While the GSA declined to reveal which government agency it will house there, its lease prohibits “law enforcement, immigration, probation, health or medical welfare” tenants, a spokesperson for landlord the Durst Organization told TRD.

One source close to the tower who asked not to be identified said the U.S. Securities and Exchange Commission is currently the front-runner to take the 270,000-square-foot space. The source also said the other agencies are off limits in order to retain the “corporate identity” of the building.

Meanwhile, online discount stock brokerage E*TRADE is taking “a hard look” at space, sources said. An E*TRADE spokesperson denied that the company has looked at a 1 World Trade Center space, but it currently occupies 39,000 square feet at the Time-Life Building, according to the CoStar Group.

Stacom said she tours the building with prospective tenants “several times a week,” and that interest has come mainly from “law firms, tech companies and other professional services firms.”

She also said that considerations of partial-floor tenants in the building have begun in earnest. “We expect, in 2013, to do some [deals for] smaller spaces.”

Stacom declined to specify if the building was in negotiations with any tenants. And she declined suggestions that leasing was going too slowly.

“We are two years before we can even turn over the whole building, so we’re ahead of schedule,” she said.

 

Refugees from Midtown

The decision to consider partial-floor leases at 1 World Trade may prove to be a smart decision based on what’s happening in Lower Manhattan.

The market for smaller spaces Downtown is ramping up, said Hal Stein, managing principal at Newmark Grubb Knight Frank and head of the firm’s Lower Manhattan office.

“Tenants under 10,000 feet always drive Lower Manhattan,” he said.

In addition, some noted that the interest in small spaces in the top-shelf buildings is increasing. Plus, as Midtown South heats up and concessions there wane, more tenants are eying Lower Manhattan, including the World Trade Center buildings, brokers said.

“While concession packages Downtown haven’t changed, concession packages in Midtown South have,” Stacom said.

Most tenants Downtown are receiving $60 or $70 per square foot of landlord contributions to their build-out, including at the Trade Center. The standard free rent concession for a new tenant with good financials is one month for each year a tenant signs for, said Dirk Hrobsky, an executive vice president with DTZ, the commercial brokerage previously known as UGL Limited.

As has been reported, Condé Nast shelled out around $60 per square foot for its space, with progressive increases over the course of the company’s 25-year lease. The GSA, which is required by law to pay market rate, is paying similar rents, and will also see price increases at regular intervals during its 20-year lease, a source familiar with the negotiations said. Current asking rents in the building are $75 per square foot for the floors below the sky lobby on the 64th floor, the source said; rents for the space above it have not yet been set.

By comparison, average rents for Midtown trophy office space in August were about $89 per square foot, according to data from Jones Lang LaSalle.

Another factor that could help boost the Downtown market is interest from foreign firms like Beijing Vantone Industrial Company — the Chinese real estate investment firm that signed for floors 64 through 69 at One World Trade in 2009 — brokers said.

The Trade Centers and Wall Street hold cachet for them because of their international recognition. Chinese firms “still think Wall Street is Wall Street,” said Hrobsky, referring to an assumption that the actual Downtown street and the financial services industry are synonymous.

 

Hurry up and wait

Still, leasing Downtown is generally in a holding pattern.

Sources say some tenants are waiting for the retail Downtown to bloom and for the construction at the Fulton Street Transit Center and at the World Trade Center site to be completed.

Plus, the vacancy rate Downtown is set to double by 2015, as Merrill Lynch vacates 1.9 million square feet at the World Financial Center, 4 World Trade Center adds 1.2 million square feet of space to the market and One World Trade tries to lease up its remaining 1.1 million square feet.

But brokers say that when the retail — promised at spaces like the nearby World Financial Center, where popular grocery story Fairway Market is rumored to be poking around — comes online, the region will be transformed.

“If you bring restaurants, hotels and good retail, you create an environment where companies want to bring their employees,” said Cassidy Turley’s Stephen Bellwood. “I’m certainly drinking the Kool-Aid.”

comment form

You must be logged in to post a comment.

MENU