It’s been a relatively flat start for commercial real estate leasing activity in New York City so far in 2012. And – in what the Wall Street Journal is calling the local office market’s “toughest test” since the 2008 downturn – three new speculative, LEED-hopeful office buildings are slated to come on line in 2013. Together, One World Trade Center, Four World Trade Center, and 51 Astor Place will deliver 6 million square feet of new space into the Manhattan office market. According to Cassidy Turley, that would be the most new space delivered in a single year since the late 1980s.
But the success of leasing efforts at these properties will likely have little to do with their LEED labels and green attributes. As the Wall Street Journal notes, demand for Class A office space is lagging because of the persistently soft financial services sector. And moving forward financial services tenants are likely to take smaller blocks of space than 2 million square feet, whuich became de rigeur during the boom. Indeed, according to Colliers International, Manhattan tenants taking over 5,000 square feet leased 5.9 million square feet in the fourth quarter; 6 million square feet in the third quarter; and 6.2 million square feet in the fourth quarter of 2010.
Some brokers are also wondering about what the repercussions might be for lower end buildings throughout Manhattan. If new, speculative developments succeed, it could be at the expense of older, less prestigious buildings (many of which have implemented expensive capital improvement programs and pursued LEED-EB: OM over the past five years). The Journal also makes the important point that the success of leasing efforts at the 2013 towers will have repercussions for other high-profile projects in the pipeline (many of which will also seek LEED certification) like 7 Bryant Park, Albanese’s Cook+Fox-designed 510 West 22nd Street and Related’s Hudson Yards project on the far West Side.
The cyclical nature of commercial real estate in Manhattan is a cause for concern too. Just as many office buildings built in the 1980s sat empty through the early 1990s, the three 2013 towers will hit a soft market just as many tenants are reconsidering their commercial real estate needs and downsizing when their leases come up for renewal. While the more efficient use of office space is great for the environment, it’s not good for developers and landlords looking to fill up their buildings.
Still, Edward Minskoff is optimistic about the LEED Gold-hopeful 51 Astor Place’s prospects, telling the Journal that he hopes to have the first tenant (IBM or Microsoft?) signed up in the next few months. “51 Astor Place is in a so much cooler neighborhood [than the World Trade Center] and such a great location,” he also told the Journal. “You can’t compare the World Trade Center, which is a tall box, to a building that’s going to be an iconic building that’s going to be recognized as such when it’s complete.”
The extent to which green attributes play a role in leasing and sales premiums for commercial properties has been a longstanding debate. And much of the evidence one way or another has been purely anecdotal. So consider this article as another in that thread. But it’s nevertheless interesting that all of the towers featured in the Wall Street Journal piece – from the World Trade Center and Hudson Yards mega-projects to the boutique trophy 7 Bryant Park, 51 Astor Place, and 510 West 22nd Street – are, or will be, pursuing LEED certification. The increase in LEED-EB: OM applications from older office buildings could be a welcome byproduct of the value that the new construction market continues to see in the LEED label. Still, in considering the prospects for each of the 2013 towers, it’s likely that traditional real estate market metrics will drive their success – not third-party certification efforts.