When the Murdoch media empire abandoned plans to move from midtown Manhattan to the World Trade Center two years ago, developer Larry Silverstein put on a brave face. “Make no mistake,” he said. “Downtown’s momentum is palpable and unstoppable.”
We’re about to find out.
As companies realize they need less office space than they leased, they’re dumping more than 600,000 square feet of subleases downtown, competing with their own landlords and threatening to undercut rents.
“Sublet space is usually priced at a discount to direct space” offered by landlords, said Craig Caggiano, executive director for the New York tri-state region at Colliers International Group Inc. “If sublet space stays on the market, or even more sublet space comes on the market, that could exert a downward pressure on prices.”
Second Thoughts
When Silverstein declared downtown unstoppable, Conde Nast Inc. had relocated to 1 World Trade Center, and brokers from CBRE Group Inc., which represented the Murdoch companies in talks with him, had just said their move would confirm lower Manhattan as a mecca for media tenants. Now, Conde Nast is giving up 376,000 of its more than 1 million square feet at 1 World Trade.
On top of that, Liberty Mutual Insurance Co. is looking for takers for 130,000 square feet at 55 Water St., a 3.5 million-square-foot behemoth by the East River, and the Port Authority of New York and New Jersey is marketing two floors at its headquarters in Silverstein’s 4 World Trade Center. Port Authority spokesman Steve Coleman said officials “identified space efficiencies in the tower and are taking advantage of it.”
All told, downtown subleases made up 2.3 percent of the market’s 105 million square feet at the end of May, according to Franklin Wallach, managing director for tri-state commercial property data for Colliers. Other than April’s 2.4 percent, that’s the highest level since 2010, when the city’s financially driven economy was struggling to recover from the 2008 crisis.
And more supply is on the way. Silverstein is cutting the ribbon today on 3 World Trade Center, a 2.5 million-square-foot skyscraper that will open about 40 percent rented, ahead of his 2 World Trade Center, which is slated to add 2.8 million square feet to the market when it’s built.
With 14.3 million square feet of office inventory under construction in Manhattan, “it’s hard to think there won’t be winners and losers as these buildings pull tenants away from older space,” said Lauren Baker, an analyst with CoStar Group Inc., which monitors office leasing nationwide.
Subleases in the New York metropolitan area now make up more than 1.5 percent of the market, the highest since 2010, CoStar data show. According to Colliers, both Midtown and Midtown South -- the area roughly between Bryant Park and Canal Street, which has been popular with technology and media tenants -- are at 1.7 percent.