The Manhattan office market is undergoing a significant transformation with several major office developments changing the skyline.
Cushman & Wakefield estimates that in the 10 years from 2014 to 2023 Manhattan will see approximately 34m sq ft of new office space completed – the largest amount of new office space to be built in Manhattan over a 10-year period since 1986-1995.
Most of the new construction is concentrated in two locations: the new World Trade Center in the Downtown market, where four buildings (three of which are complete or near to completion) with a total of 10m sq ft have been rising; and the Hudson Yards development on the far west side of the Midtown market, where a total of approximately 17m sq ft is planned to be delivered by 2023. Hudson Yards is the largest commercial development project in the US today and the largest development project in Manhattan since the building of Rockefeller Center more than 80 years ago.
The new office space is desperately needed. The average age of a building in Manhattan today is approximately 85 years. By and large, the office stock is old and inefficient. Today, one of the top concerns of business leaders across the globe is talent – where to get it and how to retain it. Companies now are using real estate as a tool to attract talent.
With much more open space, higher ceilings to let in natural light and column-free space, today’s new buildings are being constructed to meet the requirements of tenants. These kinds of spaces are more attractive to millennial workers who do not want to work in their father’s skyscraper.
“Companies now are using real estate as a tool to attract talent”
In addition, new buildings are constructed with a denser work environment in mind and the infrastructure is built to hold more employees. So companies that are leasing in these new buildings are getting attractive space they can use much more efficiently than the older stock in the market.
It’s no surprise that tenants are flocking to the new construction. At the World Trade Center, the two completed buildings are 83% leased; and Three World Trade Center, currently under construction, has commitments for 28% of the building (it is scheduled to be completed later this year).
Attracting top talent
At Hudson Yards, only one building is complete and it is fully leased. Four other buildings are under construction – three of which will be completed in the next two years – and they are already 91% occupied. The fourth, to be completed in 2022, has commitments for nearly one third of the building.
Indeed, I fully expect that the majority of office space under construction in Manhattan today will be close to fully leased before it is completed.
The businesses leasing this new space represent a wide range of industries from media and publishing to financial services, law firms, advertising, manufacturing and technology. What they all have in common is a desire to be in the newest, most efficient office space, which will enable them to attract and retain the best talent. It’s not so much about location; it’s mainly about talent.
New construction is also attractive to tenants not going into new development. Late last month, JPMorgan Chase announced plans to tear down its world headquarters, the 1.5m sq ft office tower it currently occupies on Park Avenue in Midtown, and replace it with a 2.5m sq ft tower at the same location that will house double the number of people.
When the World Trade Center and Hudson Yards projects were begun, in some cases more than a decade ago, there was widespread concern that absorbing so much office space would be an enormous challenge for Manhattan. But that has not turned out to be the case.
New office buildings have the characteristics that occupiers want and so tenants are flocking to the new product. For New York City to remain a global centre of commerce, it needs to continually refresh itself and provide occupiers with the best space and amenities. If they build it, the tenants will come.
Ken McCarthy is principal economist at Cushman & Wakefield