Prospects for Manhattan Office Construction Brighten
June 30, 2011
By Neal Tepel
While Manhattan will, for the first time since 2000, go an entire year without celebrating the opening of a significant new office tower, the ingredients exist for a major mid-decade surge in new office construction, according to a New York Building Congress analysis of multiple data sources.
Except for the anticipated completion of 33,700 square feet of office space at 2 Allen Street, no new office completions are expected in Manhattan until the 700,000 square foot Gem Tower in 2012. That tower will be followed by the anticipated completions of 1 WTC and 4 WTC starting in late 2013.
Prior to this year, Manhattan had welcomed at least one new major office tower annually since 2000, including 10 towers of at least one million square feet.
New Office Supply Lagging
Manhattan added approximately 20 million square feet of new office space between 2001 and 2010. While this represents a considerable improvement from the prior decade, when just six million square feet were produced, it is still modest by historical standards. In addition, its effect on Manhattan’s inventory of office space was offset by the 13.5 million square feet destroyed on September 11, 2001.
By comparison, Manhattan produced nearly 4 million square feet of new office space annually in the 1970s and 1980s – double the amount added in the first decade of the 21st Century. Further still, an average of 6 million square feet of new office space was produced annually in the 1960s, while the 1950s averaged 3 million square feet per year.
“It is remarkable how little office space was actually added in Manhattan during the recent building boom,” said New York Building Congress President Richard T. Anderson. “In fact, New York City has gone two full decades without a significant expansion of its office stock.”
A Burgeoning Pipeline
The present lack of significant new building is largely attributable to the recent global downturn, which produced a dramatic decline in office employment along with a sharp rise in office vacancies and a dearth of financing for office construction.
The good news, however, is that developers for a significant number of major office projects have completed designs, secured necessary approvals and in some cases started pre-construction in anticipation of an improving economy.
Most notable are 2 and 3 World Trade Center, both of which are currently being constructed to street level. These towers are fully designed, though will require tenant commitments in order for developer Silverstein Properties to proceed past the initial stages.
In addition, Boston Properties recently announced it will restart construction of 250 West 55th Street, which was suspended in 2009. The 1.0 million square foot tower is now slated for completion in 2014.
Other potential candidates for mid-decade construction starts include Brookfield Properties’ two million square foot Manhattan West project, Vornado’s 2.8 million square foot 15 Penn Plaza, as well as its 1.3 million square foot tower over the Port Authority Bus Terminal, and the initial phases of the Related Companies’ Hudson Yards development.
If these and/or other potential projects are realized, Manhattan’s office inventory could grow by more than 20 million additional square feet through this decade.
Employment and Leasing Gather Strength
While the local economy has not yet revived nearly to the extent that would permit a full-scale office construction boom, key indicators are moving in the right direction.
New York City office employment, which peaked at 1,788,000 jobs in the summer of 2008, is back on the rise. It reached a low point of 1, 653,000 jobs in January 2010, but as of April of this year, the City regained 48,000 jobs, for an overall total of 1.7 million office jobs.
This increase in employment has helped fuel a nascent recovery in the office leasing sector as well. After three years of decline, the amount of office space leased in Manhattan jumped to 23.3 million square feet in 2010, up from 16.5 million square feet. Based on the first five months of this year, the Building Congress projects nearly 30 million square feet of space will be leased in 2011.
Similarly, The CBD’s availability rate, which is a measure of unoccupied and available space, dropped to 12.0 percent in May, according to CB Richard Ellis. This is down from 13.9 percent in May of 2010.
Average asking rents have reflected this strengthening in the overall market. According to Cushman & Wakefield, average Manhattan office asking rents topped $55 per square foot in May, an increase of 1.7 percent from May of last year.
The New Space Race
“Today’s major corporate tenants are finding it difficult to locate large blocks of available, contiguous space within Manhattan’s CBD,” added Mr. Anderson. “The options narrow even further for tenants who require technologically-advanced, “green” and efficiently-configured office space. Fortunately, the projects currently on the drawing board will go a long way toward filling that gap. It is now up to New York City to get them built or risk ceding our competitive advantage to other global centers of commerce.”