By James Nelson, Vice Chairman,
Cushman & Wakefield, Chair of REBNY’s Commercial Brokerage Board of Directors,
and Caroline Hannigan, Director,
Cushman & Wakefield
The need for new office space in New York City has been a topic of discussion for some time now.
There are many challenges and obstacles that come with the need to grow the stock. From land shortage to zoning restrictions to political challenges, they must be addressed for the City to compete with the top global office markets like London, Shanghai, and Tokyo.
Midtown Manhattan continues to be the largest office market in New York City with 240 M SF out of a 394.6M SF total throughout Manhattan.
However, in the last few years, Midtown has lost its popularity to other NYC markets.
Some of this is due to TAMI tenants (technology, advertising, media, and information) looking for more dynamic neighborhoods and flexible work space in Midtown South or Brooklyn.
Other tenants looking for newer office space may consider Midtown’s average 60 years old inventory not suitable. There are some notable exceptions to this, including L&L Holding’s 425 Park Avenue
Many other tenants looking for new office space and large floor plate have already relocated to The World Trade Center with 10M SF of total office planned or the Hudson Yards which currently has 9.4M s/f, including Manhattan West; one day it may become 25M s/f. Even with this new development, it will not satisfy our City’s growing needs.
A Crain’s September 2015 article stated that New York needs more than 20M s/f over the next four years in order to meet demand.
In 2012, Cushman & Wakefield projected the City would need 92M additional square feet by 2040, or around 3.3M s/f per year.
The good news is that there has already been a total of 9.7M SF of new office space is slated to be built across 19 new buildings in Manhattan by 2016.
The New York Building Congress also reported a large uptick with $1.7 billion in 1H2015 construction starts.
However, it should be hard to keep up this pace, as the amount of available land is shrinking.
In one study we did years back, we found that only three percent left of Manhattan was unimproved land. Brooklyn and Queens aren’t much better.
With over 25 percent of Manhattan properties being located in historic districts, that is not so easy.Furthermore, many other areas are either zoned for low rise residential or manufacturing.
Only The World Trade Center and Hudson Yards currently offer the “super zoning” which can yield buildings with up to 33x FARs and no height restrictions.
Bloomberg’s originally proposed rezoning of Midtown East may help to some degree, by up-zoned the area between Fifth and Third Avenues from 39th to 57th Streets. There has been little to no new construction in the Midtown East area since the 1970s, and many of the office buildings in the zone are small.
The proposal would increase the average building size from 20 percent to 30 percent, which is still not enough.
With Manhattan being almost fully spoken for, it is not surprising that office developers turned to Brooklyn, Queens, and The Bronx now a couple of years back. These neighborhoods offer the opportunity to build new office buildings that offer attractive layouts, greener and more economic operations, and amenities that most Midtown office buildings do not.
They also offer large format buildings such as the Brooklyn Navy Yard, The Falchi Building, and Industry which are now being repurposed to include not only office, but destination retail.
Although there have been some great conversions in the Boroughs, there is still plenty more opportunity. However to build office, many times a variance must be sought.
Heritage Equity Partners is currently seeking one for its planned nine-story, 480,000 s/f office building in Williamsburg.
If approvals are given, other developers will follow. However, this would be a piecemeal solution. A larger, more macro approach must be taken to continue to allow our City to grow.