As Related Companies readies for the grand opening of Hudson Yards this week, only 50 Hudson Yards — the largest of the complex’s four office towers in the eastern yards at 2.9 million square feet — is left to finish.
Both 10 and 30 Hudson Yards — the pair of dancing towers anchoring either side of the complex’s seven-story mall — and 55 Hudson Yards are open and teeming with office workers. The mixed-use 35 Hudson Yards, where Equinox leases office space, is also finished.
But even amid varied stages of completion, the 8.9 million-square-foot office portion of the $25 billion megaproject is roughly 82 percent leased, according to Related.
“It sounds fairly incredible that the city within a city gets built from 2013 to now and is substantially leased up,” said Jeff Peck, a broker at Savills Studley who has done two office deals for tenants in the neighborhood. “I think it’s much higher than anybody would have ever thought.”
As the neighborhood has risen, office rents in the area have climbed 40 percent, according to CBRE.
Jay Cross, president of Related Hudson Yards, said the firm was “pretty aggressive” to land deals with marquee tenants like Coach, L’Oreal, BCG and SAP when leasing first opened at the site in 2013, offering them much cheaper deals than companies are seeing these days.
“It’s always the way: the early bird special,” Cross said in an interview. “And then people start flocking, and you try to catch-up.”
If you build it, they will come
Coach kicked off confidence at Hudson Yards. The haute handbag and fashion company struck a deal with Related in 2013 to become an equity partner in 10 Hudson Yards, paying $530 million for a 738,000-square-foot office spread, according to Real Capital Analytics.
Following that deal, a conga line of firms signed leases at 10 Hudson Yards — now fully occupied — including Boston Consulting Group, software giant SAP, L’Oreal and Crescent Capital.
Savills Studley’s Peck, who arranged the lease for Crescent, said it got much easier to market the area to tenants once they could actually see the work that was going on in the neighborhood.
“As soon as product starts coming up out of the ground and tenants can start walking it and start visualizing it, that’s when the momentum really kicks in,” Peck said.
The office tower at 30 Hudson Yards is also completely taken: Time Warner in 2014 announced it would purchase a 1.6 million-square-foot office condo, which accounts for more than half of the 2.6 million-square-foot building. Banking giant Wells Fargo and private equity firm KKR also closed on condos in the building, and Related Companies is taking six floors towards the top of the tower.
At 50 Hudson Yards, which is not scheduled to open until 2022, 1.3 million out of 2.9 million square feet of office space have been leased. A huge chunk of that went to BlackRock, which signed a 20-year, $1.25 billion deal for 847,000 square feet of space.
Meanwhile, the law firm Milbank, Tweed, Hadley & McCloy anchored 55 Hudson Yards, followed by tenants such as Daniel Loeb’s Third Point Management and Intercept Pharmaceuticals. Apple is reportedly eyeing as much as 60,000 square feet in the building.
“As time went by, we got our own momentum going,” Cross said. “The last few deals over here at 55 Hudson Yards have been north of $130 a foot. We started at $70 [a foot].”
Asking rents in the greater Hudson Yards neighborhood — which includes developments like Brookfield Property Partners’ Manhattan West — have also skyrocketed over the years.
“Essentially adding an entire new neighborhood to the Far West Side with best-in-class office property is obviously one of the reasons why rents are higher in that market,” said CBRE researcher Mike Slattery.
Office rents in the area hovered around $85 per square foot from the beginning of 2016 through the midpoint of 2018, when they shot up to about $126 per square foot, data from CBRE shows. This increase was mainly because of space that came online at 30 Hudson Yards and at Brookfield’s 1 Manhattan West. They have fallen slightly since then to roughly $118 per square foot.
Jumps in asking rents like this are rare, but they generally happen when new assets such as Hudson Yards arrive with a large amount of high-quality space. Slattery pointed to the addition of space this year at 425 Park, 375 Park and 550 Madison in the Fifth/Madison Avenue submarket as another example of an area that saw sharp increases in rent.
The rents are also eclipsing more established parts of the city. A fourth quarter report from Savills Studley ranked Hudson Yards as the neighborhood with the second highest office rents in Manhattan at an average of $110.10 per square foot. That puts the submarket only behind Plaza North, which sits below Central park, at $115.39 per square foot, and well ahead of more established neighborhoods such as Soho, Midtown South and the Financial District. Those submarkets have average rents of $98, $82 and $58 per square foot.
Hudson Yards 2.0
Once the dust settles following Friday’s grand opening, Related will turn its attention to the second phase of Hudson Yards. The developer is planning another 6.2 million square feet of mixed-use buildings to be completed in 2024.
Bordered by 11th and 12th avenues, and rising above the Hudson River, the next part of the neighborhood will have five residential buildings, a 2 million-square-foot office building and a 750-student public school.
Hudson Yards’ official opening will take place at a particularly competitive time for Manhattan’s office market, with other massive projects like One Vanderbilt and the World Trade Center complex coming online as well. And while competition between these buildings will be intense, Peck said the real competition will take place among buildings that companies are leaving behind for the newer spaces.
“If they’re relocating out of a 1962 building with not such great infrastructure, with low ceiling heights that don’t foster collaboration and efficiency,” he said, “those buildings will be knocking heads with each other and causing a bit of a price war.”