The list could go on and on in New York City right now… Yankee Stadium. Mets stadium. Freedom Tower. Goldman Sachs headquarters. One Bryant Park. Silvercup West. Gateway Center at Bronx Terminal Market. Shops at Atlas Park.
The commercial development market is in the midst of a certified boom, as projects big and bigger redefine the city’s skyline while non-residential development reaches areas once unthinkable as major building sites.
At the current pace, more commercial square feet will have been built — or construction on more started — in 2006 in Manhattan alone than in any other year but one going back to the late 1980s, according to data from brokerage Colliers ABR. Also, developers this year have announced plans for several million more commercial square feet in Manhattan, with construction and completion in the near future.
But, beyond the square footage, the sheer number of commercial projects reinforces the scope and scale of this boom.
The Real Deal collected data on commercial projects started since the beginning of 2005, as well on projects that were announced but on which construction has yet to start, such as the Freedom Tower. The collection did not include mixed-use projects that were mostly residential nor hotels, hotel-condos or dormitories.
It did include the more than 80 commercial developments — malls, stadiums, skyscrapers, and a myriad of smaller projects — that freshly dot Gotham’s commercial development landscape or hover just over its horizon.
Growth, obsolescence spur demand
Daniel Doctoroff, the deputy mayor for economic development and rebuilding in the Bloomberg administration, says strong job growth spurs the demand for new commercial space. The city’s unemployment rate dipped to 4.5 percent in September, an 18-year low. New York, unlike many major cities, keeps adding residents.
And the resulting demand for employee space has given developers the confidence to move forward with major projects. The Manhattan office vacancy rate, according to brokerage Cushman & Wakefield, reached a five-year low of 7 percent in the third quarter.
“We’re an increasingly office-based economy, which requires additional commercial space,” Doctoroff said. “And the demand’s coming from all different sectors — it’s finance, it’s service, it’s education, it’s not-for-profits.”
Also, swathes of commercial space were converted (at least 12 million square feet in Downtown alone from 1995 through 2005) into residential space. In addition, lots of current commercial space simply doesn’t meet corporate needs for top-flight Class A space. Think of the iconic, yet aged Empire State Building (see Empire State Building readies for makeover).
“I don’t think there’s a growing demand, but the existing buildings are becoming obsolete,” said Douglas Durst, whose firm is developing One Bryant Park in Midtown, a 54-story tower with Bank of America as the anchor tenant.
Towers for recovering Downtown
Some of the biggest commercial development is happening in Downtown Manhattan, an area barely five years removed from September 11.
As many as four towers totaling 8.9 million square feet are planned at the World Trade Center site, with completion of all slated by 2013. The biggest of these skyscrapers is the 2.6-million-square-foot Freedom Tower. Across from the site, investment behemoth Goldman Sachs plans a 1.9-million-square-foot new headquarters to be completed by early 2009. The 1.7-million-square-foot 7 World Trade Center, also across from the trade center site, opened in February and is already more than half-leased.
But, beyond Ground Zero, commercial development thrives Downtown. Smaller projects are under way across the submarket, where the office vacancy rate in the third quarter dipped below 10 percent, its lowest level since September 11, according to Cushman & Wakefield.
Time Equities this year developed a 350,000-square-foot commercial condo at 125 Maiden Lane, one of the few such hybrids in the city. Also, the City University of New York plans a 400,000-square-foot building for 74 classrooms and laboratories and a student lounge at 30 West Broadway.
Tighter Midtown dominates
There’s not much space to build new commercial projects in Midtown, one of the most built-up business districts on earth. But SJP Properties found space for a speculative office tower, buying an empty site — some called it a gaping hole — at 11 Times Square on the southeast corner of 42nd Street and Eighth Avenue.
There, the New Jersey-based firm plans to build a 1.1-million-square-foot tower even though it has no tenants lined up first, a sign of confidence in the New York commercial market. The tower’s construction is set to start in 2007.
“For an owner and a lender to make that kind of commitment on a speculative basis, that tells me the environment is ripe for construction,” said Gus Field, an executive vice president at Cushman & Wakefield who specializes in Midtown.
Eleven Times Square is far from the only upscale tower slated for Midtown, where the vacancy rate for Class A space was 6.2 percent in the third quarter, its lowest since 2001.
The 1.6-million-square-foot New York Times headquarters at 620 Eighth Avenue, developed by Forest City Ratner and to be half occupied by the newspaper, is slated for completion in April 2007. More than three long blocks away, the 2.1-million-square-foot One Bryant Park, overlooking what was only 10 years ago a crime-ridden park, should open in early 2008.
The Hearst Corporation headquarters on West 57th Street, developed by Tishman Speyer, opened in late summer, bringing 856,000 square feet of fully leased space into the Midtown submarket. Also, the 300,000-square-foot 505 Fifth Avenue, with financial firm CIT as anchor tenant, opened last April.
“Ahead of the curve”
The commercial development boom in New York echoes across the city, including the outer boroughs (see below). In fact, market realities should make development beyond Downtown and Midtown a must for the future.
“We have looked ahead 25 years and see a need for roughly 75 million square feet of space, only a minority of which we can accommodate with an existing capacity,” Doctoroff said. “As a result, we’re furiously trying to get ahead of the curve.”
Doctoroff said the lack of space for new commercial development in parts of Manhattan helped spur zoning changes to create more commercial space in areas like Long Island City, the Hudson Yards on the far West Side, and downtown Brooklyn.
Trinity Real Estate, which owns nearly 6 million square feet of commercial space in Hudson Square in Manhattan, is considering new projects at 4, 6 and 7 Hudson Square that could bring nearly 2 million square feet to the long-struggling area. Hudson Square has had some of the highest vacancy rates of any Manhattan submarket this decade but a rising market has lifted the square’s boat.
Its third-quarter vacancy rate was 22.9 percent, according to Colliers ABR, about identical as the same time in 2005. Asking rents, however, have shot upward in Hudson Square. “Two years ago, we’d be lucky to get mid-high $20s [per square foot],” said Jason Pizer, Trinity’s leasing director. “Now, we’re doing deals in the low $40s.”
Hudson Square falls in a larger Midtown South submarket that hasn’t been the site of any major new commercial development completed in 2006. But the potential’s there for the future: The Real Deal’s survey counted at least nine sites that brokerages like Colliers ABR and CB Richard Ellis have touted as potential development sites. The nine could host as much as 6.7 million feet of fresh commercial space.
“We never really had the demand for them,” Pizer said of the three Hudson Square development sites. “Now, we’re getting serious looks from people — just a lot of different choices, because of the hot market, that were never available to us.”
Bed, bath & beyond Manhattan
Commercial projects spill into outer boroughs as developers move past the familiar
Think of the South Bronx. Do you think of Bed Bath & Beyond? Soon, you may.
Bed Bath & Beyond will take space in a 1-million-square-foot mall on the South Bronx waterfront developed by the Related Companies called Gateway Center at Bronx Terminal Market. The mall, to be completed in the fall of 2009, will unfold over a formerly blighted stretch of dilapidated warehouses, a transformation indicative of the creep of commercial development into areas of the city once overlooked by developers.
A survey last month by The Real Deal found that in the outer boroughs, at least 20 primarily commercial projects are now under way, planned or have been completed this year (see chart).
The four other major commercial projects now under construction in the Bronx besides the Gateway Center are also in the borough’s southern half. These include the 170,000-square-foot Hub and Retail Office Center between 153rd and 156th streets on Third Avenue, also a Related Companies project; and the new 51,800-seat Yankee Stadium nearby. Two more commercial spreads are planned, among them a 100,000-square-foot building at 854 Westchester Avenue.
In Brooklyn, much of the new commercial development clusters around downtown. A recent rezoning opened up developable space for at least 4.5 million square feet of Class A office space and 900,000 square feet of retail. Much of this surrounds the newer Willoughby Square, a 1.5-acre park between downtown and Fort Greene.
And, if the Atlantic Yards project does move forward, it would cover 16 acres southeast of downtown Brooklyn. The $4.2 billion project, backed by developer Forest City Ratner, would include more than 600,000 square feet of office space and nearly 250,000 square feet of retail as well as a new basketball arena for the New Jersey Nets.
The New York Mets are working on a 45,000-seat stadium on a parking lot next to Shea Stadium in Flushing, Queens. Like the new Yankee Stadium, the team should take to its new diamond by the summer of 2009. Elsewhere in Flushing, TDC Development International completed this year a mixed-use commercial project with more than 190,000 square feet of office space and 80 commercial condos. And Muss Development, partnering with Onex Real Estate, plans 800,000 square feet of retail in its new Flushing Town Center, with occupancy by 2009.
Several projects are planned in Queens, including the 2.5 million square feet of commercial space slated as part of the Queens West development on the East River waterfront.
Fresh space is slated for Staten Island as well. As much as 1.5 million square feet of retail space is under construction on the borough’s South Shore, with two malls scheduled for completion in the next two years. Also, Chicago-based General Growth Partners, owner of the Staten Island Mall, plans to add 110,000 square feet to the indoor shopping center.