***
Manhattan office landlords and tenants signed 10.2 million square feet of leases in the final three months of 2024, marking the strongest quarterly volume in the city's office market since Q4 2019. Total leasing in 2024 reached its highest point in five years and was 22.4% higher than in 2023. However, New York City's office availability has dipped significantly due to planned conversions, leading more landlords to take office buildings offline. Manhattan's office inventory shrank by nearly 6 million square feet over the course of 2024.
Nearly 20% of the quarter's leasing volume came from just three leases: Bloomberg's 925K SF extension and expansion at SL Green’s 919 Third Ave., Citadel’s 504K SF new lease at Brookfield’s 660 Fifth Ave., and law firm Ropes & Gray’s 430K SF relocation to RXR’s 1285 Sixth Ave. Two prevailing dynamics point to continued potential strength in 2025 for Manhattan’s office market: demand for trophy and Class-A office space, which accounts for 64.8% of Manhattan's inventory but captured 79.3% of Q4’s leasing volume. The most popular submarket during Q4 was Midtown, which accounted for 77% of leases signed during the quarter.
***
The office market in Manhattan experienced a strong finish to 2024, with firms leasing about 10.2 million square feet of space during the fourth quarter, marking its strongest quarter since 2019. The leasing volume for the year was about 33.3 million square feet, up 22.4% from 2023 but still lower than 2019's total of 43 million square feet. Bloomberg's expansion to 925,000 square feet at 919 Third Ave. was the largest lease, followed by Citadel taking 504,000 square feet at 660 Fifth Ave. and Ropes & Gray taking 430,000 square feet at 1285 Sixth Ave. These deals combined made up almost a fifth of Manhattan's total activity during the quarter.
Manhattan ended the year with a 16.5% availability rate, its lowest since September 2022. Net absorption for 2024 was about 7.3 million square feet, its strongest in 10 years, and landlords took about 4.8 million square feet of office space off the market for potential conversions. Average asking rent dropped to $73.42 per square foot for the sixth consecutive quarter. In Midtown, firms leased about 6.3 million square feet of space for the quarter and 19.2 million square feet for the year, making 2024 the neighborhood's strongest leasing year since 2018. However, the momentum seen in 2024 must continue in 2025 to achieve overall recovery in the market.
***
Citadel has signed the largest new office lease in the last three months of 2024 at Brookfield Properties' 660 Fifth Ave., the second-largest in Manhattan during the fourth quarter. The deal is significantly larger than previous reports that Citadel was looking to take 365K SF in the 39-story Midtown tower. Brookfield spent $400M renovating the building after taking it over from Kushner Cos. in a $1.1B ground lease deal. Citadel will occupy 20 floors of the 39-story tower, on the corner of 52nd Street.
Citadel employees are moving into the space while a joint venture of Griffin, Vornado Realty Trust and Rudin is building a supertall at 350 Park Ave. Citadel has agreed to occupy approximately 850K SF of the nearly 2M SF tower. Citadel's Fifth Avenue lease, alongside deals by JPMorgan Chase at 277 Park Ave. and Blue Owl Capital at 375 Park Ave., added to the continuing domination by finance, insurance, and real estate firms in the office market, combining for 44% of all fourth-quarter leasing activity.
***
SL Green CEO Marc Holliday will receive a $10 million cash bonus if he brings a casino to Times Square, according to a regulatory filing. This announcement highlights the significant business opportunity for Manhattan's largest office landlord and the uncertainty surrounding obtaining state permission to convert a 54-story tower into a casino hotel. Groups like Actors Equity, Laborers' Local 79, and developer RFR have supported the Times Square casino bid, while opponents include the Broadway League and the owner of a Midtown office building.
At least 10 rivals, including The Related Cos., Silverstein Properties, Bally's, Miriam Adelson's Las Vegas Sands, and New York Mets owner Steve Cohen, have their own casino bids. Applications are due in June, and state officials are expected to decide who gets the three downstate casino licenses by December. CBRE has forecast that a casino in the five boroughs could generate $2 billion in annual revenue and $600 million in operating income. Holliday's $10 million jackpot would significantly add to his personal bottom line, as he was paid $18.5 million in 2023, with nearly $16 million in shares instead of cash.
***
More than 200 triple-digit priced leases also historic:
Manhattan's office market has seen a record year of triple-digit leases, with 28 deals signed for at least $200 per square foot last year. The market also saw 212 deals signed for at least $100 per square foot, covering 9.8 million square feet, outpacing 2019's record by 1 million square feet and last year's count by more than 4 million square feet. However, supply is limited and shrinking for trophy office spaces, with 35 triple-digit leases spanning at least 50,000 square feet and 11 spanning at least 200,000 square feet.
It is said that "people aren't blinking" at $200-plus rents anymore, accounting for nearly 600,000 square feet leased last year. RFR Holdings' Seagram Building counted 12 triple-digit rent leases, including nine at least $200 per square foot. Financial service firms accounted for 40% of all leases signed in Manhattan last year, and nearly two-thirds of the triple-digit deals. Overall, tenants signed leases for 30.2 million square feet last year, breaking the 30-million-square-foot plateau since 2018.
***
Sail Harbor financed purchase of $200M note
American Exchange Group has acquired 1375 Broadway, a 27-story office building in Manhattan, after acquiring the $200 million debt from Aareal Capital. The note was financed by Sail Harbor Capital and converted into a first mortgage, with property records showing a mortgage amount of $165 million. The acquisition reflects American Exchange's belief in the resurgence and enduring appeal of Manhattan's office market.
The building has been in the ownership of Savanna since 2015, when it was sold to Westbrook for $310 million and reacquired in 2020 for $435 million. American Exchange, a fashion manufacturing company, has been involved in real estate, having recently acquired 292 Madison Avenue from Vanbarton Group for $90 million. Savanna, the seller of 1375 Broadway, has also made recent acquisitions, such as the 100,000-square-foot 430 West 15th Street in the Meatpacking District and 799 Broadway in Greenwich Village.
***
Owners modernizing 695 Sixth Ave as longtime tenant Burlington exits
Majestic Rayon Corporation and Cudge Realty are nearing the completion line for M-CORE benefits, a Manhattan Commercial Revitalization program that incentivizes owners of older Class B and C buildings to modernize them and add amenities. The project, which includes renovating, expanding, and furnishing the 199,000-square-foot building at a cost of $189 million, is expected to create 563 jobs paying $100 an hour. The building, which has been occupied by Burlington Coat Factory for decades, is relocating to a larger space at 620 Sixth Avenue.
The final step to receive the benefit is a vote by the city's Industrial Development Agency. The property was cobbled together over a hundred years ago through multiple expansions. The M-CORE application predicts that the extensive modernization of the property will create 563 jobs paying $100 an hour. The program reimagines business districts as 24/7, live-work-play destinations, and was announced in May 2023. The project is expected to help transform 10 million square feet of underperforming office space and boost nearby businesses, such as restaurants, that serve the buildings' workers.
***
Interest rates and attitudes in the year ahead
Real estate professionals are predicting a slowdown in transaction volume and a potential downturn in 2025. The Federal Reserve's interest rate hikes in 2022 have led to a slowed market, with total volume for U.S. commercial real estate reaching its lowest level since 2013. However, higher interest rates are expected to remain, making real estate more expensive for financing, buying, and operating. The industry is now more competitive in attracting tenants and owners must become operators. Commercial real estate is expecting bigger things in 2025, with office leasing velocity increasing and leasing volume increasing by almost 50% in October.
Corporate tenants have acquired some immunity to interest rate hikes, and there is still room in the budget for leases. The pandemic has led to a narrative that office markets are divided into top-tier and lower-tier. However, in New York, Ultra Class A and Class A buildings are doing well, while higher-end Class B is worth watching in 2025. Investors are interested in these buildings at a discount, and the market needs more comps to understand values and sales. Despite the negative perception, vacancy numbers in Manhattan are not as grim as they once were.
***
Their proposed presidential advisory commission, Department of Government Efficiency, wants fewer government workers — but all of them at the office
Elon Musk and Vivek Ramaswamy are aiming to reduce the federal government's office footprint by drastically reducing regulations and reducing office space. The proposed advisory commission, Department of Government Efficiency, reports that federal government agencies use only 12% of their DC headquarters space. Trump and DOGE want federal employees to return to their offices, which could have major implications for the office market in Washington, D.C., as well as other cities with a large civic workforce. The government owns and leases over 363 million square feet of space across the country, controlling about 26% of the market.
However, some developers and brokers are concerned that Musk's approach could be detrimental to city centers still stinging from remote work. The General Services Administration (GSA) has been reducing its office space by 21 million square feet since 2023, with the largest reductions in the capital region. The GSA's efforts increased during and after the pandemic, leading to "mass headcount reductions" across the federal bureaucracy. The Trump administration's policies are expected to benefit real estate, with some landlords expecting downsizing public departments to boost private sector growth.
***
Israeli billionaire Idan Ofer’s Quantum Pacific is partnering with Metro Loft
Nathan Berman and Israeli billionaire Idan Ofer have secured a $88 million purchase of 767 Third Avenue, a 330,000-square-foot building, from Sage Realty. The building, which was developed in 1981, was not eligible for residential conversion before the City of Yes passed in December. The new legislation, which changed eligibility from buildings built before 1961 to those built by 1991, makes conversions of buildings like 767 Third Avenue possible.
The city's 467-M conversion tax incentive is also creating more opportunities for conversions. The purchase closed last week with a $55 million loan from Bank Hapoalim. Berman is currently working on several large conversion projects across Manhattan, including the redevelopment of the former Pfizer headquarters at 235 East 42nd Street, which is slated to deliver 1,500 apartments, making it the largest office-to-residential conversion ever.
Comments