Manhattan's building boom a quandary for aging office complex

Tue Nov 10, 2015 12:00pm EST
 
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By Herbert Lash

NEW YORK Nov 10 (Reuters) - A new skyline rising across Manhattan poses a challenge for the owners of the city's aging office buildings as they face expensive overhauls in order to compete against a wave of amenity-rich towers nearing completion.

Manhattan has the oldest office infrastructure in the world, and record levels of available space by 2017 will test the moxie of landlords who are losing top tenants to the new buildings mostly going up in Lower Manhattan and on the West Side.

Firms such as Time Warner Inc, News Corp, L'Oreal and Conde Nast, among others, already have moved or agreed to relocate either downtown at the developing new World Trade Center complex, or the West Side's new Hudson Yards district.

By the end of the decade, about 18 million square feet of new office space will be built in the biggest building spree that New York has seen in more than three decades. While just 4 percent of the city's entire office space, even owners of prime Class A space need to ensure they can retain or sign the best tenants.

By late next year, big blocks of space will open up, adding pressure to a market with nine or 10 buildings, largely in Midtown, that realtor Savills Studley says already are struggling with "empty building syndrome" - tenant vacancy rates of 75 percent or higher.

"Unless there is some big wellspring in demand and unless there's a bounce-back in the core tenants - the financial and legal sector - we don't see where the demand is going to come from," said Keith DeCoster, director of U.S. real estate analytics at Studley, a unit of Savills Plc.

To nab tenants, some landlords are getting creative with renovations, and some even had to wait years to empty a building of tenants that had long-term, staggered leases.

Developer L&L Holding Co LLC waited a decade for leases to expire last year so it could "re-imagine the geometry" of a 1953 building at 390 Madison Avenue once occupied by United Nations offices, said L&L co-founder and chief executive David Levinson.   Continued...