Vornado Realty Trust lauded a third quarter that saw it sign seven Manhattan office leases at asking rents of over $100 per square foot and position itself as “one of the largest owners in the important and supply-constrained West Chelsea office market,” according to a quarterly earnings call Tuesday.
The real estate investment trust completed 43 office leasing deals totaling 509,000 square feet in the third quarter at an average starting rent of $79.80 per square foot, David Greenbaum, the New York division president, said. That brought total year-to-date leasing activity to nearly 1.7 million square feet at average starting rents of $80.09 per square foot.
Seven of those 43 leases, aggregating 69,000 square feet, were booked at asking rents of over $100 per square foot, Greenbaum said, while 24 percent of Vornado’s total Manhattan leasing activity this year – around 400,000 square feet – was signed at average asking rents of $108 per square foot.
The REIT has been boosted by Manhattan office availability of 9.7 percent that stands at its lowest level since the third quarter of 2008, Greenbaum added, with Vornado continuing to see “strong employment growth for office-using tenants” in New York City.
Greenbaum noted that while the TAMI sector remains strong, Vornado has also seen FIRE tenants – comprising the financial, insurance and real estate sectors – “become very active in the leasing market,” and described the two markets as “dual engines driving job growth in the city.”
The REIT did, however, see Manhattan office occupancy in its own portfolio dip slightly to 96.2 percent, which Greenbaum attributed to five floors, or 100,000 square feet of space, that were vacated at 888 Seventh Avenue in Midtown. But the company has already leased two of those floors at rents over $100 per square foot, he added.
Meanwhile, the REIT continues to bet on the West Chelsea office market, where it acquired the Otis Elevator Building at 260 11th Avenue in July.
“Rents across all submarkets in Manhattan are converging,” chair and CEO Steven Roth said, adding that he expects Vornado’s Chelsea holdings to command rents “on a par with traditional Midtown submarkets to the north.”
Vornado also discussed reports that it is looking to reposition its office and retail property at 666 Fifth Avenue, which Roth described as “a magnificent asset, brilliant located” in the heart of Fifth Avenue’s desired retail corridor.
“The highest and best use for this property if it was not encumbered by the building would be a series of mixed uses,” Roth said, adding that Vornado was in talks with Jared Kushner’s Kushner Cos. and other partners at 666 Fifth Avenue to find “the optimum business plan” for the site.
On the retail front, Vornado also applauded its signing of Victoria’s Secret to a 16-year deal for 64,000 square feet at 640 Fifth Avenue, where the lingerie giant will open a flagship store next November. Combined with an adjacent retail space at the address featuring 25 feet of Fifth Avenue frontage – which Vornado is retaining to lease to another tenant – the REIT expects to collect 3.5 times the rent it received from its previous tenant at 640 Fifth Avenue.
Roth also talked up Vornado’s ongoing plans in the Penn Plaza district, describing it as the company’s “big kahuna.” He noted that the “hierarchy” surrounding office submarkets in Manhattan and their various tiers of pricing “is starting to evaporate,” citing how Penn Plaza office rents that have long ranked among the cheapest in Manhattan have steadily risen to the mid-$60s per square foot.