More and more office tenants are heading west.
In a just-released report on Manhattan construction, Colliers International found that since 2014, Midtown has lost 5.14 million s/f in tenant relocations greater than 50,000 s/f to the Hudson Yards/Manhattan West submarket.
The biggest deals have been consumer product tenants like L’Oreal, TAMI tenants such as Time Warner and Markit Group, and professional services firm Boston Consulting Group.
But financial firms have taken big bites out of the Far West Side as well, with BlackRock, Silver Lake Partners, DNB Bank and Point72 Asset Management, and powerhouse law firms Skadden Arps, Boies Schiller and McKool Smith.
And it’s not just Hudson Yards and Manhattan West drawing tenants from Midtown.
The Hospital for Special Surgery leased 66,000 s/f of office and medical space at 600 West 58th Street in Midtown, while Aetna leased 142,000 s/f for its new headquarters at 61 Ninth Avenue, and ticket giant Live Nation subleased 100,000 s/f at 430 West 15th St. in Midtown South.
“There is really a strong demand for new construction,” said Franklin Wallach, managing director of research at Colliers International.
In the last six months alone, nearly two million square feet of deals greater than 50,000 s/f closed in buildings built after 2010 or scheduled to be built after 2010.
In Manhattan alone, there is currently 33.64 million s/f of new/renovated office inventory in the pipeline, according to the report. Of that, 18.4 million s/f has a scheduled delivery date, while only 3.45 million s/f of that is in Midtown.
One Vanderbilt is perhaps the biggest new construction building being developed in Midtown, and will bring 1.6 million s/f of office space, while in Columbus Circle, Savanna has filed plans to develop a 27-story, 90,000 s/f office building at 106 WEST 56th Street.
While new construction office buildings and the Hudson Yards/Manhattan West submarket continue to draw in tenants, the space left behind in Midtown isn’t necessarily languishing.
“Tech and TAMI are filling in the gap that professional services tenants left behind,” said Wallach. “The borders between markets has become much more porous. Tenants are willing to go anywhere in the city.”
Wallach and the research team at Colliers found that when they compared the current market cycle to the last market cycle, they found that tenants with a large footprint are now much more willing to relocate to a different market.
“Midtown is at a real net loss,” said Wallach.
The market has a net loss by 8.3 million s/f of tenants who have left versus those who have come since 2011 — the year when Conde Nast relocated to Lower Manhattan.
Meanwhile, Downtown Manhattan has a net positive of six million s/f, with more tenants relocating there than those leaving.
Wallach, who has been working in the real estate industry for 17 years, said there has been a sea change in how tenants decide where in the city they want to be.
“It used to be the tenant would say I want to be in the Plaza District, I want to be in Grand Central…
now, increasingly, tenants are saying you tell me; You tell me and I’ll tell you whether that works,” said Wallach.