In the Push To Lease Manhattan Office Space, B Stands for Better Deals

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The twelfth flooring of 55 Fifth Avenue, simply south of Union Sq., is an energetic development zone. Partitions are being torn down. Infrastructure and pipes are totally uncovered because the 22,000-square-foot flooring will get a face carry within the hopes of attracting a brand new tenant.

The big area with views spanning from the Empire State Constructing to Greenwich Village has been vacant since a medical workplace related to Memorial Sloan Kettering departed late final 12 months. That wasn’t a shock, stated Brian Soto, director of acquisitions and asset administration for Time Equities Inc., the true property agency that owns a lot of the workplace constructing. He knew they have been reviewing their wants even earlier than the pandemic. But it surely was horrible timing.

With the extra departure of two smaller tenants final 12 months, Soto stated the constructing’s occupancy has fallen from about 95% pre-pandemic to only over 80%. “The property hasn’t been at 81% occupancy in all probability for 20 years,” he stated.

Throughout Manhattan, workplace buildings are nonetheless affected by a glut of accessible area greater than a 12 months after the pandemic despatched staff house and shut down most leasing exercise. In response to the true property agency CBRE, the provision fee in older, “commodity” buildings like 55 Fifth Avenue was nearly 20% on the finish of June, almost double the 2019 fee of 11.1%.

Older buildings with out prime flight facilities are also referred to as Class B workplace area. They don’t have fancy bogs and cafeterias. Inbuilt 1910, 55 Fifth Avenue solely has three elevators. It’s nothing just like the gleaming towers round midtown and Decrease Manhattan which might be thought of Class A workplace area, or trophy buildings.

Rents have fallen for each sorts of buildings because the pandemic. However Nicole LaRusso, director of tri-state analysis and evaluation for CBRE, stated there are solely about 200 “higher buildings” among the many 844 Manhattan workplace buildings tracked by her agency. This implies older, commodity buildings make up the majority of the market and are beneath extra strain to improve.

“Landlords really feel elevated competitors to draw tenants,” she defined.

Flight to High quality

The true property business was already seeing what it calls a “flight to high quality” earlier than the pandemic. Tenants who may afford to have been transferring into Class An area, and builders have been constructing extra of it round Grand Central, the World Commerce Heart, and Hudson Yards. That triggered a wave of enhancements in Class B buildings. Now that there are numerous extra vacancies, LaRusso stated they’re scrambling to offer extra companies for picky potential tenants.

“If in case you have an older asset that perhaps has older constructing techniques, does not provide lots of facilities, perhaps gradual elevators,” she defined, “these are all of the sorts of investments that landlords may take into account making to make their buildings extra enticing and extra aggressive.”

For this reason the twelfth flooring of 55 Fifth Avenue is getting a serious makeover. Soto can’t rely on potential tenants to be wowed by the views, and picture a brand new area of their very own, like he may earlier than the pandemic. “Given the atmosphere we’re in, we actually must put our greatest foot ahead,” he defined.




A tiled bathroom–stripped of fixtures—is seen. The tiles are white and grey, with a blue and yellow floral pattern accenting them

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The twelfth flooring of 55 Fifth Avenue nonetheless has previous tiles in bogs that have been beforehand a part of a medical workplace. They’re going to get replaced by new bogs.


Beth Fertig/WNYC

That features demolishing the tiny medical suites and bogs with subway tiles. Concrete flooring shall be polished and some pre-built places of work shall be put in. Soto can also be planning to construct a fitness center upstairs. All this funding, although, has a value.

“We actually are taking a haircut,” he acknowledged. “I imply, we have adjusted our asking rents to the place we predict transactions will occur.”

Time Equities isn’t the one agency, by far, bettering Class B area. Grant Greenspan, who manages leasing for the Kaufman Group, stated the areas his firm renovated earlier than the pandemic have been leasing first, at about $57-$62 per sq. foot. Previous to the pandemic, he stated they have been going for $65-$75.

Completed areas are “going like hotcakes,” added Leslie Wohlman Himmel, founder and co-managing accomplice of Himmel + Meringoff Properties. To draw tenants, she stated her agency additionally made on-line excursions of its properties rather more accessible for individuals who couldn’t bodily journey to take a look at areas.

The true property business apprehensive firms would transfer to smaller places of work after the pandemic, now that extra individuals are working from house. Specialists say the jury’s nonetheless out. Scott Rechler, the CEO and chairman of RXR Realty, predicted staff could have larger requirements post-pandemic for what they need of their places of work, particularly round communal areas, even when they solely return a number of days every week. He stated they’ll be trying to “have interaction with colleagues and get a way of group and function.”




A renovated floor shows shiny wood floors and modern-looking glass partitions on an unoccupied, recently renovated space

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Renovations have already been made to area on the thirteenth flooring for potential tenants to get a greater thought of what the area can appear to be.


Beth Fertig/WNYC

Within the meantime, extra tenants are taking up present leases, both to attain deal or purchase extra time to determine their submit pandemic wants. Yana Collins Lehman checked out lots of area this 12 months after her firm’s lease close to Penn Station expired.

“We noticed locations the place, like, individuals simply deserted their lease,” she recalled. “All of their stuff, their desks and all the pieces, their snacks, their books have been all nonetheless there.”

Collins Lehman is president of the accounting firm Trevanna Submit, which works with the movie and tv business. She was already in a Class B area and her landlord supplied incentives to maintain her, however she apprehensive crime was rising round Penn Station and he or she wished a safer, nicer neighborhood. She additionally wished room for her firm to develop.

Trevanna Submit signed a 10-year lease at 55 Fifth Avenue. The owner is constructing her new places of work, a kitchen and a convention room. “It is 5,000 sq. toes,” she stated. “And it is a little bit dearer than what now we have right here in Midtown, however nowhere near as costly because it was.”

She stated Union Sq. and Flatiron have been pricier neighborhoods for Class B area earlier than the pandemic, and he or she’s thrilled to be transferring downtown. Soto, of Time Equities, stated two extra leases are awaiting signatures for area within the constructing.

With landlords including in additional facilities, tenants are capable of get much more for his or her cash in these older buildings. However landlords must resolve if they’ll afford to improve, as a result of there’s lots of additional area to go round.

Francis Greenburger, who based Time Equities in 1966 and whose headquarters are at 55 Fifth Avenue, stated he’s all the time involved in regards to the ebbs and flows of the town’s actual property market. However he stated landlords with the sources to speculate will have the ability to experience them out higher than others. And he predicted the flight to high quality that began earlier than the pandemic will proceed, no matter how many individuals return to their places of work full or part-time.

“You’ll want to have sure facilities that individuals come to count on to have of their office,” he stated. However, taking the lengthy view, he added, “I am extra apprehensive about local weather change than I’m pandemics, to be sincere. Let’s not lose deal with among the larger occasions and challenges in our life.”

Beth Fertig is a senior reporter protecting the town’s restoration efforts at WNYC. You possibly can observe her on Twitter at @bethfertig.



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