Lease deals in NYC’s high-rises signal the shift to a new space race

The biggest new lease of the year is also the scariest for some market analysts. While KPMG’s commitment to 450,000 square feet at Two Manhattan West is good news for Brookfield Properties, it’s a different story for Rudin Management’s 345 Park Ave. and 560 Lexington Ave., and for SL Green’s 1350 Sixth Ave. – three Midtown towers where KPMG will leave a total of 800,000 square feet when it moves next year.

Experts quoted elsewhere have predicted dark times for the Manhattan market, with several other companies also drastically reducing their floor space. HSBC Bank, for example, will halve its footprint here when it moves to Tishman Speyers Spiral next year.

Reflecting a modest contrarian trend, law firm Freshfields Bruckhaus Deringer US signed on for 180,000 square feet at Silverstein Property’s 3 World Trade Center — an expansion of its current 110,000 square feet at 601 Lexington Ave.

But while KPMG is giving up more space than Freshfields is adding, the moves have something in common that bodes well for Manhattan’s future despite space returns due in part to working from home.

Many large retailers argue that the bigger problem than the amount of space being taken up or given up is the type of space that is increasingly in demand.

This of course means new space – and the newer the better. This is good news for developers and the construction industry, as well as for the city’s tax base, which has already suffered from declining commercial values.

Freshfields Bruckhaus Deringer US has signed for 180,000 square feet at Silverstein Property’s 3 World Trade Center.
World Trade Center

Two Manhattan West and Three World Trade belong to the illustrious league of towers that easily outperform towers that opened just 20 years ago. Their success in attracting premier tenants mirrors the circumstances of Related’s Hudson Yards, Silverstein’s and the Durst Organization’s other World Trade Center buildings, Tishman Speyer’s Spiral, SL Green’s One Vanderbilt and L&L Holding Company’s 425 Park Avenue.

All managed to fill most or all of their expensive floors. The robust advance lease of 550 Madison Ave. from the Olayan Group and Brookfield’s 660, both of which have been completely redesigned to make them effectively new, suggest they are also heading towards full occupancy.

CBRE CEO Mary Ann Tighe, who was part of Silverstein’s leasing team at Three World Trade and is 550 Madison’s chief leasing agent, argued that the market is far too large and complex to proceed with easy generalizations.

“The reality of the situation is that there is no single solution. It is so nuanced and unique to each business,” she said.

“The one thing that stands out from everyone [the recent lease signings] is that new buildings and older ones that have been completely renovated fit the profile” of where the tenants want to go, regardless of whether they are growing or shrinking.

Tighe distinguished between “21st century buildings”, which may already be 23 years old when new leases come into force, and “those built within the last decade”.

JLL Tri-State chairman and president Peter Riguardi, who was not involved in either transaction, said companies that are downsizing “are doing it strategically to be in better buildings.” They are more attractive to talent and more conducive to bringing people back to offices.

Using less space allows businesses to reap the benefits of new construction — such as better floor slabs, more advanced electronic and mechanical infrastructure and in-building equipment — “without increasing their average annual occupancy cost.”

KPMG’s director of communications, W. Scott Horne, said of his firm’s move: “Our real estate strategy is centered on creating offices that embody our culture, attract and retain top talent and redefine the ‘work experience.’

Horne said, “We selected buildings that met those criteria, and Two Manhattan West came out the unanimous choice.”

But what about obsolete and old buildings that can only be improved to a certain extent?
Without minimizing the challenges their owners face, they are more easily converted into homes than modern ones. And in any case, working from home may not be as permanent and universal as it seems today.

As The Post first reported, JP Morgan Chase CEO Jamie Dimon is quietly but forcefully cracking down on telecommuting. He has a new skyscraper for his headquarters at 270 Park Avenue — and he has no plans to use it for Zoom meetings.

Leave a Comment