Are NYC Office and Retail Assets Coming Back?

By Senior WriterPublished On: June 17, 20227.3 min read

Just last month, Facebook leased more office space at 770 Broadway in Manhattan, adding an additional 300,000 square feet of office space at Astor Place in the East Village (the same office space that was previously vacated by Verizon Media, the storefront below is where the former Kmart was home to).

According to artificial intelligence firm Placer.ai, which tracks office building foot traffic, they recently reported a 107% increase in foot traffic to Manhattan office buildings this past February, compared to the same month last year.

“Traffic to office buildings in NYC is still down compared to the same period in 2019, but there is a clear recovery taking place,” said Ethan Chernofsky, Vice President of Marketing at Placer.ai.

“The return to work is a significant trend to track, as its potential impact on urban retail and restaurants is substantial,” he said. “The continued draw of core business areas and the office, in general, speaks to the nuances of a hybrid work environment where the office continues to play a central role.”

A rendering of an office building.

1245 Broadway | Image provided by SOM

A few new offices that have opened include design firm Olson Kundig’s new headquarters, which is set in a century-old Midtown office tower. According to a statement released by the firm: “this new office will also foster cultural exchange and design dialogue between New York and Olson Kundig’s hometown of Seattle.” They have an oversized table designed by Tom Kundig in their community gathering space, called “the Living Room,” and it makes one wonder, will commercial real estate mimic residential settings to lure people back to the office?

Some experts are still on the fence, though, as Midtown is coming back slower than expected. And without the full-on return to offices, “there is going to be a bit of an uphill climb to get where we were in 2019,” said Richard Born, a hotel developer in New York, and owner of BD Hotels.

Square glass windows are arrayed on the side of a building.

28&7 | Image provided by SOM

IBM has also taken over at One Madison Avenue, where they have brought together employees from 10 different locations into one mega headquarters, a 328,000 square-foot space, with a lease signed in March.

The space is a redevelopment led by real estate investment trust SL Green. Even though the building’s original facade is made of limestone, they’re adding glass, and the construction is expected to be completed November, 2023. This enormous building, across from Madison Square Park, will be home to IBM on several floors, including the second floor, seventh floor and eight to 10th floor (IBM employees will even have their own lobby entrance, too). The building will boast a fitness center, a sophisticated HVAC system to circulate fresh, outdoor air, enormous oversized windows and an outdoor terrace on the 10th floor that is 34,000 square feet.

The most in-demand area in the office market of Manhattan is the area around Grand Central station, SL Green leasing head Steven Durels told the New York Post.

Other real estate firms that are leasing office space include Related Companies, Tishman Speyer and the Durst Organization, usually for top dollar prices to wealthy tenants. This past spring, the Manhattan leasing market has been increasing. 1155 Sixth Avenue is in demand, which is also a property of the Durst Organization. The offices at 1540 Broadway have secured 66% of its space leased to a total of 19 tenants, including pharmaceutical companies.

According to an April report in CBS News, commercial real estate in New York is doing better than expected. New, renovated spaces are in demand, according to Jordan Barowitz, Vice President of Public Affairs for the Durst Organization, who says One World Trade is one of the hottest areas to lease an office in the Financial District. He told CBS, “You see it in the residential market. Demand is at an all-time high. We don’t think it’ll be too long before we see that renaissance in the commercial market as well.”

A car sits outside an office building.

28&7 | Image provided by SOM

Skidmore, Owings & Merrill (SOM) Principal Olin McKenzie, and GDSNY founder Michael Kirchmann — who recently worked on two new office spaces at 28&7 and 1245 Broadway, both of which offer high-end and eco-friendly design to commercial real estate — commented on the trend.

“From the beginning of the pandemic, even as people were ringing the death knell for New York City, I was bullish on New York,” said Kirchmann. “I have always believed in New York City and its ability to withstand gut punches. And we see now, that the housing market has completely rebounded and the office market is as well. In the end, colleagues need to be together at least some of the time, and businesses need to be able to offer their staff a beautiful space in which to convene. That is what we are offering with these two buildings.”

McKenzie explained the design approach as timeless, wrapped up in sustainable materials. “Creating a building that will last is essential to minimizing embodied carbon over time,” he said.

A man stands at a lobby desk.

28&7 | Image provided by SOM

The 28&7 building is partly made of terracotta, which is not only decorative, but also acts as a rainscreen system, the architect said.

“The terracotta is designed with a custom glossy black glaze, and this color gives the building a timeless feel — it contrasts the stone and brick of the surrounding buildings, and also casts a reflection throughout the day,” McKenzie said. “This ultimately makes the building both evocative of the prewar buildings in the neighborhood while reinterpreting these structures in a contemporary way.”

Some firms are staying put, too. One example is the office space leased by jewelry company Tiffany & Co., who have made 200 Fifth Avenue their headquarters. The company recently extended their lease by 10 years, which now runs until 2036, even though they have reduced the square footage of office space from 400,000 square feet to 287,000 square feet.

Meanwhile, the global insurance company, the Chubb Group, signed a lease at 550 Madison Avenue, in the Chippendale tower designed by Philip Johnson and John Burgee, between East 55th and 56th Streets. The tower is aiming to not only have next-level wellness amenities, but be LEED Platinum and WELL Gold certified for their commitment to environmentally friendly amenities.

It isn’t just office space, but retail, too. According to The Real Estate Board of New York, which released its latest Spring 2022 Manhattan Retail Report on May 20, there has been an increase in retail across Manhattan. Something they found was the increased market activity over the past six months, and that storefronts in high traffic areas like Upper Madison Avenue and in SoHo, have been leased by international and national retail chains, stabilizing rents.

The numbers 28 & 7 are displayed in a lobby.

28&7 | Image provided by SOM

Retail firms like Canada Goose, which has leased a storefront at 689 Fifth Avenue, is a recent addition, as is Versace’s lease at 747 Madison Avenue, and food and beverage leases at Union Square, the Flatiron District and in Midtown.

“In early 2021, food and beverage, fitness and local services dominated activity in Manhattan–we were just starting to see a return of international retailers along with first-time entrants previously priced out of the borough,” said Keith DeCoster, Director of Market Data and Policy at REBNY.

“Demand is now coming from multiple sources like luxury fashion and accessories retailers on Madison Avenue and in SoHo, along with home décor and furniture tenants active in multiple corridors,” DeCoster said.

The numbers 28 & 7 are displayed in a lobby.

28&7 | Image provided by SOM

“National chains like Whole Foods and Petco added large outposts and emerging niches like cannabis are expanding,” he said. “Overall, momentum across the borough has made significant headway in recent months.”

The report also claimed that the return of Planet Hollywood to Times Square is helping tourism, while Swarovski, the crystal company, has a planned flagship at 711 Fifth Avenue. “Despite uncertainty in the economy, there seemed to be no stopping shoppers during the last several months,” said Joanne Podell, Executive Vice Chair of Cushman & Wakefield, a global commercial real estate firm.

“The willingness of so many retailers to commit to new stores of late underscores the resilience of consumers and brick and mortar retail.”

DeCoster added: “Many key market drivers for Manhattan retail real estate are trending in the right direction and we expect significant leasing to continue this summer. With a decline in prime vacancies and rebounding asking rents, landlords are pulling away from creative deal structures and very aggressive incentivized leases as market conditions normalize.”

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