Does the Park Avenue address still have the same ring to it?
As more and more well-known companies leave Park Avenue for new construction, what lies ahead for one of the world’s most prominent avenues?
Will Hudson Boulevard be the next Park Avenue?
Will the next generation of CEOs say, “I have to be on Park Avenue” or “I have to be on a park”?
My colleague, Wyatt Melzer, posed the questions above. It’s a great topic to discuss. In recent months Citibank, Wells Fargo, GE and Boston Consulting Group have all signed leases to relocate off of Park Avenue. These are big companies leaving behind a significant amount of space. Equally as important is the message these relocations send to other companies with upcoming lease expirations. Park Avenue is not doomed and there will never be another “Park Avenue” address, but product on Park Avenue is what’s important, more so than the address itself.
With Manhattan flattening – i.e. pricing stabilizing across Midtown, Midtown South and Downtown – the notion of a “prestigious address” may end. This is because product is increasingly replacing location. Location is still important, but good product, and especially new construction, can make a company look past their geographic preferences and instead prioritize the advantages new construction offers (e.g. higher ceilings, floor to ceiling glass, column-free floor plates, cheaper overtime HVAC, etc.)
New construction is everyone’s competition. Years ago, real estate experts may have told their landlord clients that Hudson Yards was not competitive because of its location. Before 10 Hudson Yards was completed, Related had leased or sold as a condo interest all available space in the building to firms including Coach, L’Oreal, SAP, Boston Consulting Group and Intersection. They have fully accounted for all available space at 30 Hudson Yards (2.6 million square feet,) and that building won’t deliver until 2019. At 55 Hudson Yards, the 1.3 million square foot, 51-story tower currently under construction directly behind the new 7 train subway line, Related is actively negotiating with multiple firms that in total would lease a substantial portion of the building. Monday news was made public that Point72 Asset Management, the hedge fund founded by Steven A. Cohen, has signed a letter of intent to relocate to 55 Hudson Yards. The firm will leave behind two Madison Avenue addresses in favor of 34th Street and 10th Avenue. The trend is real; good product is beating good location.
280 Park Avenue is a great example of a recent success on Park Avenue. After the NFL and Deutsch Bank relocated in 2012, the building had 700,000 sq. ft. to lease. Vornado and SL Green teamed up and spent $150M to gut-renovate the building which included a new lobby, expanded plaza, upgraded building systems and new elevators. This significant capital improvement plan led to over 500,000 sq. ft. of leasing in the last 2 years by prestigious financial services tenants.
But 280 Park Avenue would have been successful if it was on 6th Avenue. The rents would have been lower and the total cost of the capital improvement plan would need to have made sense in the pro-forma rent pricing, but a landlord that is willing to spend the money to give its building a “new feel” (a la 1271 Avenue of the Americas today,) will be successful. 1271 A/A is spending $300M+ to improve the building, and it’s rumored that the MLB is negotiating a lease at the property (representing another tenant that would leave Park Avenue.)
If the product is good enough, tenants will come see the building and the location will be less meaningful. It may take time, but it will happen.
Prediction for the future: there won’t be another “Park Avenue address” because great product can exist in many locations. Instead, there will be many hot spots with major companies across all industries having significant establishments on Park Avenue, at Hudson Yards, Downtown, in Flatiron and maybe, hopefully, even in areas of Brooklyn and Long Island City. Companies today care more about retention than perception (i.e. the address on their website,) and a great new office building can exist wherever a landlord is willing to do the work.