“There are some storm clouds on the horizon in terms of occupancy and in terms of rental rates in the Midtown market,” according to Gregg Popkin, president of RFR Realty.
Speaking at the B’nai B’rith’s December luncheon event last week, the veteran broker said, “We are beginning to approach 2008 peaks in asking rents both in Midtown South and Downtown while we still have a ways to go in the Midtown office market.”
Pointing to slowing absorption, the desires of the millennial workforce and changes in how modern offices are typically laid out, Popkin predicted that the traditionally strong Midtown sector may need to weather a lean stretch.
Refrencing a study done by JLL, Popkin said he feared that, over the next five years, the vacancy rate in Midtown could surpass 14 percent.
“Midtown asking rent is still substantially below where it would be, if you accounted for inflation, from the year 2000,” he said.
“On the Avenue of the Americas, there are approximately 5.8 million square feet currently pending vacancy between now and 2020,” said Popkin. “A sizeable portion of this is attributable to tenants moving to new locations outside of Midtown and moving to newer buildings.”
“Some of the demand generators that are driving the market place currently include the traditional sources of TAMI tenants and FIRE tenants, but they also include other changing influences.”
Popkin pointed to an “incredible shakeup” in the changes for what even sizeable corporate tenants consider a necessary square feet allotment per person and said that the shrinking need for individual office space is not helping Midtown’s cause.
He said that Midtown has “always been at the forefront” when it comes to meeting the changing needs of commercial tenants and points to a still “reasonable” vacancy rate as proof of it’s continued ability to draw.
However, after a long stretch without significant new office development in Manhattan, recent projects such as Hudson Yards and Brookfield Place provide tenants with newer and sleeker options.
“There have been no new major office buildings added to Park Avenue since the 1980s’ and very few new buildings in Midtown,” said Popkin. The lack in upgrades is hampering the neighborhood’s ability to keep pace with the trendier and newer accommodations south and West of the Empire State Building.
Commercial tenants who currently desire the open floor plans and shared working spaces for employees in trendy neighborhoods may be currently putting a dent in Midtown’s bottom line. However, Popkin is optimistic that the neighborhood will one day keep pace again.
“I like to think and hope that the generation that’s at the forefront of making decisions today will grow up eventually and realize it’s really nice to be in a nice building and it’s really great to be near easy transportation and restaurants,” said Popkin.
“I still think there’s a lot of air left in Midtown, we’ll just have to wait it out.