Balking at big office blocks

New York office leasing improved significantly over the past year. But the steady pace of deals wasn’t enough to fill all the large blocks of vacant space lingering in Manhattan’s three main markets.

For example, in Midtown, Extell Development has announced no leases in more than two years for its International Gem Tower at 55 West 46th Street. The building’s 290,863 square feet of available space was the most stubborn large block in Midtown, according to a review of information in the CoStar Group database by The Real Deal.

In Lower Manhattan, 85 Broad Street is home to the area’s largest empty block outside of the World Trade Center site: A 637,000-square-foot space that’s been listed in CoStar for more than four years.

In the tight confines of Midtown South, however, the largest available block is a fraction of the size. At 315 Park Avenue South, five floors with about 84,370 square feet have been listed for just over one year.

While there is no unifying feature that keeps these large blocks fallow, often the issue can be found in the lack of single marketing theme, said Robert Billingsley, a vice chairman at brokerage Cassidy Turley, who was speaking generally and is not connected to any of the aforementioned properties.

Billingsley cited the Gem Tower, noting that Extell has not been clear on whether it’s targeting the jewelry trade exclusively, or a broader tenant base. “The building has mixed messaging,” he said.

If Extell provided some clarity, more tenants would likely take interest, he said. “I think if they embarked on an aggressive marketing campaign, they would be successful,” Billingsley said.

However, if market trends hold, these stubborn spaces may get snapped up soon.

At the end of last month, there was 19.8 million square feet of available space in Manhattan in blocks of 100,000 square feet or more, down from 21.7 million square feet at the end of the March, according to Heidi Learner, chief economist at Savills Studley.

Overall, the Manhattan leasing market remains healthy. The average asking rent last month for all Manhattan office markets rose to $64.61 per square foot, from $64.46 per square foot in June, figures from commercial firm Colliers International showed. The availability rate, which measures spaces that are vacant or will become available over the next year, dipped to 10.8 percent in July, from 11 percent in June.

Midtown

The Dolan family’s Madison Square Garden Company renewed a pair of leases in two Vornado Realty Trust buildings in the Penn Plaza district. Those leases were the largest signed since late June in Manhattan, according to a review of CoStar data.

The sports and entertainment company — which owns the arena and teams that play there, the New York Knicks, Liberty and Rangers, multiple theaters including Radio City Music Hall and MSG sports networks — inked the two-building lease totaling 318,517 square feet in late June.

The deal included 257,541 square feet on six separate floors at the 1.5-million-square-foot 2 Penn Plaza above Penn Station, and 60,976 square feet on the third floor at the 1-million-square-foot 11 Penn Plaza.

A Cushman & Wakefield leasing team including Bruce Mosler, August DiRenzo, and others represented the tenant.

The MSG lease deal is roughly the same size as the vacancy in Extell’s Gem Tower, where the firm sold commercial condos on the lower 20 floors of the building, but where the top 14 floors, each with about 22,000 square feet of space, have seen no deals inked since the block was put on the market in December 2011, Costar shows.

At the time, Extell hired Cushman to lease the space, with reports pegging asking rents between $100 and $135 per foot.

That is far above the Midtown’s average asking rent, which was $74.59 per square foot in July, up 30 cents from $74.29 per foot in June. The availability rate declined by 0.2 points in July to 11.2 percent, the Colliers figures showed.

Extell took the assignment in-house last May, CoStar shows. It is not clear what the asking price is today. Extell and Cushman declined comment.

Midtown South

Strong leasing activity in Midtown South has squeezed out most large blocks. And the few that appear do not go untouched for long, CoStar shows. Yet there are a handful of sizable blocks available for more than a year.

The largest TRD identified is at 315 Park Avenue South. San Francisco-based Spear Street Capital purchased the property in a distressed sale last year for $228 million and is wrapping up a major renovation.

Spear Street announced its first new lease, with film and entertainment company Relativity Media, in April. The 11-year deal for the entire second floor starts at $65 per foot.

The asking rent is $70 per foot for the lower floors and $79 to $85 per foot for the top floors, a company spokesperson said.

That is above the average asking rent in Midtown South of $56.56 per foot last month, up 9 cents from June.

The building, at the corner of 24th Street, has a key market advantage. The landlord has some breathing room and discretion in selecting tenants because global bank Credit Suisse is still paying rent on the vacant floors, with a lease that runs into 2016.

“I think it could end up being a really great mix of [media, creative, finance and technology] companies, which is something that Midtown South offers that you won’t find in a traditional Park Avenue building,” Spear Street CEO John Grassi said.

Cassidy Turley’s Billingsley said many of the companies searching in Midtown South, which has become a tech industry hub, are looking for immediate occupancy. He cited space at 43 West 23rd Street, which he began marketing months ago with a tenant in place. While the tenant was there, the space sat, but now that it’s empty, activity is up. “If the delivery is unclear, that taints the space” he said.

A report from brokerage JLL last month showed that strong growth in the tech sector is not, however, limitless. The industry lost 600 jobs in the city in May, the most recent data available, though it remained nearly 6 percent above where it was a year earlier.

The availability rate remained flat in Midtown South last month, at 8.9 percent, Colliers statistics showed.

Downtown

Goldman Sachs once occupied virtually all of 85 Broad Street, before the global investment bank began moving to new headquarters at 200 West Street in 2009.

CoStar shows JLL listed most of the 30-story, 1.1-million-square-foot tower in mid-2010. The building landed two significant tenants — Oppenheimer Holdings for 269,221 square feet in 2011 and Nielsen Media for 116,258 square feet in 2012 — but no substantial deals since.

Billingsley said, like the Gem Tower, 85 Broad lacks a clear marketing message. He also noted that the building is on the east side of Lower Manhattan, which hasn’t seen the same burst of activity as the west side. The west side, of course, is home to Brookfield Place and the World Trade Center, where millions of square feet have been leased in recent years.

“The issue is that it is operating in the middle of the bandwidth,” meaning the property is not offering tenants inexpensive rents or a high-end rehabilitated interior, Billingsley said.

The owner, insurance giant MetLife, gave a different explanation. Superstorm Sandy in October 2012 badly damaged the building. Repairs and upgrading flood defenses took a year, and now tenants are taking a closer look.

“There has been robust interest in 85 Broad Street, and MetLife has been actively reviewing tenant proposals,” the company said in a statement. Nonetheless, another source agreed the building is not a bargain, noting the rents range from the mid- to upper-$40s to the mid-$50s.

Still, that is in line with Downtown’s overall asking rent, which at $48.91 per foot, fell by 5 cents in July, the Colliers figures show. Meanwhile, the area’s availability rate declined sharply by 0.5 points last month to 12.8 percent.

Correction: An earlier version of this article gave the wrong address for the building Robert Billingsley is marketing. The correct address is 43 West 23rd Street.