Manhattans Big Banks Resist Lure of New Office Towers

Photographer: Victor J. Blue/Bloomberg

As Manhattan developers plan millions of square feet of office towers featuring the most modern amenities, some of their biggest potential tenants have decided theyre better off staying in their current homes.

Five of the six largest New York leases since the end of 2012 have been renewals, according to data from brokerage Newmark Grubb Knight Frank. Credit Suisse Group AG (CS), Citigroup Inc. (C) and UBS AG (UBSN) -- the types of large financial companies that traditionally have made up the core of the citys office market -- opted to stay put after considering moves to new skyscrapers.

Major financial institutions are not expanding dramatically, said Joseph Harbert, eastern region president of Colliers International, a commercial-property brokerage with offices in Manhattan. If youre going to lease up a new building, youre going to have to do it with other tenants.

The renewals highlight the challenge faced by developers seeking tenants for the technologically advanced towers planned at Manhattans World Trade Center site and far west side. Financial companies are scaling back space needs or seeking to reduce costs, while many of the technology and media firms that have been the markets most avid office consumers over the last three years have largely chosen older buildings.

Manhattan has more than 25 million square feet (2.3 million square meters) of new office space either just completed, under construction or ready to start, according to Newmark data. Another 6.3 million square feet of offices are in the planning stages.

At the same time, the Real Estate Board of New York, the trade organization for the citys commercial landlords, is pushing for a revival of former Mayor Michael Bloombergs aborted attempt to rezone the office districts surrounding Grand Central Terminal to replace old and obsolete towers.

The group cited a study by the citys Independent Budget Office issued in September that projected that the city needs about 52 million square feet of new office space between now and 2040 to accommodate expected job growth and space that could be lost to conversions and demolitions. The former mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Its an open question whether there will be enough appetite for new offices to fill that amount of space, Harbert said. REBNY President Steven Spinola argues that the 2013 data represent current market realities that could reverse abruptly. The average Manhattan office building is more than 70 years old, according to REBNY.

The pendulum goes back and forth, Spinola said in a telephone interview. I think financial institutions are going to get back into expansion mode and will be looking for the kind of space were talking about.

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Manhattans Big Banks Resist Lure of New Office Towers