NEW YORK CITY—As hungry office developers move to the Far West Side and Downtown, they may soon come back to build in Manhattan's core business district: the Grand Central submarket. The New York City Department of Planning has unveiled plans to rezone parts of Madison and Lexington avenues to allow taller skyscrapers in Midtown East near Grand Central Terminal. Although questions remain about whether the city's aging infrastructure and transportation network can support it, experts tell Real Estate Forum the rezoning is necessary.
"In our most desirable Midtown core, we should be able to create new product," says Michael T. Cohen, president of Colliers Internationals Tri-State executive committee. "We're out of sites, we can't tear down what exists, we're stymied. Where do we build? We build at Hudson Yards, on Eighth Avenue, at the Trade Centers. But firms want to be on Sixth, Park and Madison."
Mitch Korbey, partner and head of Herrick, Feinstein LLP's land use practice, tells GlobeSt.com that given the size of some of the existing towers, demolition and rebuilding may not be viable. "However, a number of these buildings were built in the 1930s or 1940s, and in order to respond to the marketplace now and in the future, they're going to be modernized and rehabilitated," he says. "And given existing zoning, which might constrain them in terms of size, there's not a lot of incentive."
A big part of the proposal also depends on how hungry tenants are for new space, and how much they'd be willing to pay as a premium on rents. According to midyear data from Cushman & Wakefield, Midtown's overall vacancy is 9.8%, the same as 2011, and asking rents have increased 4.9% to $66.44 per foot. Year-todate renewals totaled 6.8 million square feet, 1.3 million less than the 12-month total for 2011—a sign that tenants this year are more likely to stay put.
Tara Stacom, a vice chairman at C&W, says the city needs "quality new construction" to keep the best tenants in Manhattan, and Midtown East is lacking it. "At Grand Central, the city is starved for new construction," Stacom says. "The tenants want it to attract and retain talent. They like open, collaborative spaces, and these new buildings are much more efficient for tenants."
Howard Zipser, shareholder at Akerman Senterfitt, tells GlobeSt.com that the initial proposal has the potential to create a "significant opportunity for development," but other outside factors—like market conditions—will determine if, and when, construction will happen. "People think that zoning enables development, and that's only partially true," he says. "Just because the city fathers want to increase density, it doesn't mean that development will automatically follow."
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