Vornado Realty Trust boss Steve Roth claims to have coined the expression that Manhattan’s office market is shifting west. And every blockbuster lease being signed at Hudson Yards and Manhattan West in recent years would seem to prove him right. But now the balance of power could be shifting back east, at least according to Boston Properties’ president Douglas Linde.
“I think it’s already happening,” he said during the company’s first quarter earnings call Wednesday. Office buildings under construction on the Far West Side are mostly leased, he claimed, and the next generation of towers won’t be completed before 2022. In the interim, Midtown East and the Plaza District could see increased deal volume. “People will say, ‘Geez, the East Side hasn’t quite lost its luster,’” he added.
Boston Properties owns several office towers in the area, including the GM Building at 767 Fifth Avenue and 399 Park Avenue, which the company is redeveloping. In December, law firm Kirkland & Ellis expanded to about 520,000 square feet nearby at 601 Lexington Avenue.
CEO Owen Thomas predicted that recently passed federal tax cuts would “spur investment and leasing” by office users. He is bullish on the office market overall, noting that law firms and financial companies have joined tech and healthcare firms as office users that are expanding. “Also shifting is the breadth of office leasing activity,” he said.
The catch: growing demand for space hasn’t led to rising rents because of a surge in new construction that leaves tenants with more options. “It’s a supply problem, not a demand problem,” Linde said.
He added that he doesn’t expect concessions to start shrinking anytime soon, in part because of rising construction costs. At the Salesforce Tower in San Francisco, for example, Boston Properties is willing to fork over $100 per square foot in tenant improvements for a 15-year lease, albeit paired with strong rents.
“The market has been conditioned to a higher concession level,” he said.