Everywhere I go in New York these days I see construction cranes. It seems like every block has an apartment, hotel or office building under construction.
While that may be a bit of an exaggeration, we are in the midst of a major office building boom in Manhattan.
In 2016, the city saw more than 195,000 sq m (2m sq ft) of office space completed with more than 1.1m sq m under construction and a further 195,000 sq m due to start soon. This equates to the largest increase to the inventory in the city since the 1980s.
Over the past 25 years, by contrast, the net impact of new construction has been negligible. Much of the construction has been offset by the conversion of older office space to residential uses, and of course, by the destruction wrought by 9/11. The upshot is that while in 1990 there was 36.4m sq m of office space in Manhattan, today that figure is only marginally higher at 36.8m sq m.
During the next five years, that inventory will, however, rise to approximately 38m sq m. That this new construction is much-needed can be seen in the way companies are flocking to it.
Major corporate tenants - such as Time Warner, Wells Fargo, SAP, L’Oréal and many others - have committed to occupy tens of thousands of square metres in these new buildings.
They want them because they have the characteristics large occupiers demand today: large floorplates with few, if any, columns, high ceilings, floor-to-ceiling glass, sustainability features and built-in energy efficiency. These and other characteristics will enable companies to occupy space more efficiently and attract and retain talent.
Renovation and reinvention
Over the next few years, tenants will move their operations to these new buildings, leaving behind hundreds of thousands of square metres in other areas of Manhattan. The landlords of these buildings, in turn, now face the challenge of leasing up their office space.
One way they are meeting this challenge is through renovation. There are many steps an owner can take to update and upgrade an existing building, from lobby renovation, reworking the façade and improving the elevators to adding sustainability components and increasing energy efficiency. These can help attract tenants and can also help landlords achieve higher rents.
That’s exactly what is happening in Manhattan today. I can look out of my office and see a 185,000 sq m building that was built in 1957 undergoing a complete renovation, including new windows that will make it look like a brand-new building. While the owners can’t easily remove the columns or change the height of the floors, they can improve the exterior so that the floors receive more light.
They can invest in the building’s infrastructure so it has the capacity to hold more people. The major tenant in this building left a year ago but the owners have already signed a new major tenant, even though renovations will not be completed for almost two years.
This is typical of a new construction cycle in any major city across the globe. When there is new construction, it stimulates a round of renovation in the existing building stock.
Thus the end result of a new construction cycle is an upgrade of the entire stock of office space in New York City.
I guess it’s worth the inconvenience of putting up with the construction cranes and scaffolding. It benefits every tenant who occupies space in a major global hub like New York or London.