Old Manhattan Office Towers Languish, While New Ones Draw Scores Of Tenants

USA – New office buildings in Manhattan with superb specification and can adapt to the hybrid-work era are quickly attracting tenants, while older office towers are struggling to secure occupants, reported Bloomberg on Monday (7 February).

Owners of ageing commercial properties are also asking themselves whether it’s worth investing hundreds of millions of dollars into a full gut-renovation. This is because office usage has fallen, and available office space is adding up at a record rate and global financial firms like HSBC and Deutsche Bank are slashing their office footprint across the world.

“We are going to see a diminished use of offices as hybrid work becomes more popular,” said Ruth Colp-Haber, CEO of brokerage Wharton Property Advisors.

“The really cool buildings have a huge amount of activity. But for anything other than ‘really cool,’ the landlords are struggling and the dichotomies are getting worse.”

Undertaking a major makeover doesn’t guarantee that a refurbished office building will be able to vie against their newer counterparts.

But failing do so means falling office rents, which could result in foreclosures and mortgage defaults. Another strategy – transforming obsolete office towers into residential units – can be complex and prohibitively costly.

According to the latest data from CoStar Group, the vacancy level of office space in Manhattan has reached 12.3 percent from 7.8 percent two years ago. At 15 percent of existing office buildings, at least a 20 percent of the space is vacant

As office rental activity rebounded in 2021, around 65 percent of new leases were in higher-quality office buildings. Notably, these are recently constructed office projects or those that have undergone substantial renovation. These also have above-average maintenance, in addition to featuring plenty of natural light and outdoor spaces, said CoStar.

In New York City, where about 90 percent of the office supply is over two decades old, the disparity in rental prospects is stark.

New office towers, including those at One Vanderbilt close to the Grand Central Terminal and at the Hudson Yards mega project, were leased quickly and drew in the most established financial firms and tech companies.

On the other hand, older office buildings that haven’t been overhauled in the past 10 years or so can barely attract tenants, even when their landlords are offering significant rental discounts and incentives.