The Real Deal New York

From retail’s lonely hot spot to co-working’s latest growth spurt, a look at the biggest trends

Commercial market report
By Chava Gourarie | May 01, 2018 11:00AM

Chelsea Market at 75 Ninth Avenue (Credit: Chelsea Market)

Meatpacking bucks the retail slump

Retail rents throughout Manhattan are sliding at a faster rate, and almost no submarket is immune. In the first quarter, asking rents in the shopping meccas of Upper Fifth Avenue and Soho were down 11 and 13 percent year-over-year, respectively, while Midtown tourist traps Times Square and Herald Square were down 4 and 9 percent, respectively, per Cushman & Wakefield. Not even the up-and-coming Flatiron District (down 4 percent) held its ground. But there was one exception: Retail rents in the Meatpacking District increased 5 percent, to $371 per square foot, between the first quarters of 2017 and 2018 — the only corridor to increase out of the 11 tracked. William Silverman of Hodges Ward Elliott said the Meatpacking District has bucked the trend of falling rents largely because it’s turned into a destination for pioneering companies looking to try new retail concepts. The neighborhood’s tenant roster now includes Samsung’s “digital playground,” the Hermes flagship, the Lexus and Tesla showrooms and the soon-to-come Starbucks Roastery and Restoration Hardware hotel. “There’s no other market with such a concentration of experiential tenants,” Silverman noted.

Domestic buyers buoy office sales

Manhattan office building sales totaled $4.5 billion in the first quarter, up 125 percent from the previous year. That’s consistent with 2017’s last quarter, which saw $4.6 billion in sales, and marked a welcome change after a run of six disappointing quarters, according to data from CommercialCafe. But while last year’s sales were largely driven by foreign buyers, including Toronto-based Oxford’s $700 million purchase of the St. John’s Terminal site, the largest deals this past quarter were from domestic buyers, including Google. The tech giant purchased the Chelsea Market building from Jamestown Properties for $2.4 billion in March (see related Q&A). Google paid $2,017 per square foot for the 1.2 million-square-foot property — far more than the second and third largest deals of the quarter. Blackstone paid $661 per foot with its $742 million stake in One Liberty Plaza, while Rockpoint paid $743 per foot with its $464 million purchase of 1700 Broadway, according to Cushman & Wakefield. Of the nine office building sales in the borough last quarter, the largest five were led by domestic buyers, a sign that the Manhattan office market has legs even when foreign capital flows are down.

Major investors flock to the Bronx

After a languid year in 2017, New York multifamily investments came roaring back in the first quarter of 2018, with the Bronx showing the largest gains due to an uptick from institutional players. Multifamily investment in the borough rose 25 percent in the first quarter, to $360 million, and transaction volume jumped 19 percent, according to data from Ariel Property Advisors. Institutional investors have closed several big deals there since the start of 2018, including Taconic Investments’ $70 million purchase of a 12-building portfolio from Related and Lightstone’s $50 million acquisition of a four-building portfolio from Belmar Realty. Brookfield’s $165 million purchase of Somerset and Chetrit’s Mott Haven development site marked another boon for the market. Current plans for the 1.3 million-square-foot site call for more than 1,200 new housing units. Overall, the city’s multifamily market saw about $3 billion in dollar volume from January through March across 148 transactions and 239 buildings. “In 2017, we saw a big dip in the market, a lot of hesitation,” said Jason Gold of Ariel. “Now you’re seeing investors and institutional players really jump back in.”

The flexible office takeover continues

Co-working firms leased more office space in the first quarter of 2018 than technology, advertising, media and information tenants, according to Cushman & Wakefield. Shared and flexible office space providers — including WeWork, Knotel and Convene — leased 858,546 square feet in Manhattan during the first quarter, while TAMI tenants followed close behind, leasing 857,120 feet. And while the total space leased by flexible office tenants tripled from 2017’s first quarter, the total for TAMI tenants decreased by a third. WeWork is now the second largest private tenant in the city and trails JPMorgan Chase by just 400,000 square feet, per Cushman. The co-working giant has more than 50 locations in New York City, across a total of 2.9 million square feet, as of March 2018. That’s up 200,000 square feet from the end of 2017 and 2 million feet from 2016. But there may be a conflation between the flexible office and TAMI sectors, since many co-working tenants are tied to technology and media. “You could argue that it’s the same demand, or similar demand, expressing itself differently,” said William Silverman of Hodges Ward Elliott.