Growing supply hurting Manhattan office fundamentals: Boston Properties

REIT seeing "good, not great leasing activity" in NYC

New York /
Apr.April 27, 2016 02:00 PM

It’s not just Manhattan’s residential market that is feeling the effects of a supply glut and greater economic uncertainty, according to Boston Properties.

The city’s office market has also “been impacted by growing supply,” while economic “volatility” has hampered demand from smaller financial services tenants, the real estate investment trust said on its first-quarter earnings call Wednesday.

While describing New York as a fundamentally “good market,” Boston PropertiesTRData LogoTINY president Doug Linde said the company has seen earlier expectations that “there was going to be a supply issue” in the Manhattan office market come to fruition.

New office construction, in particular, is a key driver behind “good, not great leasing activity across the city,” Linde said, while also citing how a “roller coaster” of a first quarter in the debt and equity markets had impacted “[leasing] velocity at the top end” of the market.

Linde noted that there were five “relocation transactions written at starting rents over $100 per square foot” in the New York City office market in the first quarter, including hedge fund Citadel’s widely reported 200,000-square-foot lease at L&L Holding’s 425 Park Avenue.

But excluding the Citadel deal, the four remaining leases signed at over $100 per square foot were for roughly 10,000 square feet of space on average, Linde said.

“While we continue to see a constant and steady volume of leasing at between $80 to $100 per square foot, velocity above $100 per square foot has slowed,” he added.

Keeping such trends in mind, Linde said the Boston-based REIT would “take a very similar approach” to two floors at the GM Building, at 767 Fifth Avenue in Midtown, will be vacated come July, with the office landlord open to “subdividing them for smaller customers as required.”

Boston Properties has yet to sign a tenant for any of the 85,000 square feet terminated by media network Al Jazeera at 250 West 55th Street in February – though Linde said there are “significant conversations underway for the entire second floor” at 38-story Midtown tower, while there are a “number of food operators” interested in the building’s ground-floor retail space, which features an Eighth Avenue frontage.

The REIT is also in lease negotiations with “two existing tenants” at 399 Park Avenue for around 175,000 square feet at the Midtown office tower to be vacated by former anchor tenant Citigroup, which recently moved its headquarters to 388-390 Greenwich Street in Tribeca.

Speaking on greater market conditions, Boston Properties CEO Owen Thomas said “prices remain strong for prime assets in gateway markets” – citing Saudi conglomerate Olayan Group’s recent acquisition of the former Sony Building at 550 Madison Avenue as an example of continuing interest in the commercial real estate market from “non-U.S. investors.”

Thomas added that despite “a hint of a slowdown” in the U.S. economy, the “financial markets have improved materially from their lows in mid-February” and noted positive indicators like a “fairly healthy” job market, rising commodities prices and narrowing credit spreads.

Boston Properties’ contentious plans for the former Metropolitan Transportation Authority’s former headquarters at 343 Madison Avenue are also on track, Thomas said — with the REIT set to acquire a 99-year ground lease on the property “subject to a number of local approvals,” such as the city’s ULURP process.

The REIT hopes to build a new 900,000-square-foot skyscraper on the site, located near Grand Central Terminal, and Thomas said that development is “likely several years out” but that the company has “commenced our predevelopment work” on the property.


Related Articles

arrow_forward_ios
Boston Properties' Owen Thomas (Boston Properties, Getty)
The commercial real estate recession is here: Boston Properties
The commercial real estate recession is here: Boston Properties
From left: Joseph Chetrit, Barry Sternlicht, David Rubenstein, Michael Dell, and Marc Holliday, along with 305 East 86th Street and 1540 Broadway (Getty, Carlyle, Google Maps)
New York City’s biggest borrowers of 2022
New York City’s biggest borrowers of 2022
The Frame building at 541 West 21st Street
Nearly completed West Chelsea office project heads to foreclosure
Nearly completed West Chelsea office project heads to foreclosure
From left: Michael Dell with 25 Water Street, Alex Sapir with 261 Madison Avenue and Marc Holiday with One Madison Avenue (Getty, Edge Funds, Sapir Organization, SL Green)
Office properties (yes, office!) got Manhattan’s biggest December loans
Office properties (yes, office!) got Manhattan’s biggest December loans
From left: Vanbarton Group’s Gary Tischler and Richard Coles along with 3 West 29th Street (Getty, Vanbarton Group, Google Maps)
Vanbarton eyes life sciences project at former HFZ site in NoMad
Vanbarton eyes life sciences project at former HFZ site in NoMad
KKR’s Henry Kravis, Related Companies’ Stephen Ross and Meta’s Mark Zuckerberg with 30 Hudson Yards (Getty, Rhododendrites CC BY-SA 4.0 via Wikimedia Commons)
Surviving the tech wreck: How the Manhattan office market could pivot
Surviving the tech wreck: How the Manhattan office market could pivot
Boston Properties' Owen Thomas and SL Green's Marc Holliday (Boston Properties, SL Green, Getty)
Office developers widen their sights as sector’s uncertainty persists
Office developers widen their sights as sector’s uncertainty persists
From left: Newmark's Peter Shimkin and David Falk.300 East 42nd Street
Jamaican consulate inks 43K sf lease in Murray Hill
Jamaican consulate inks 43K sf lease in Murray Hill
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...