Chelsea New York Market Chelsea Office
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Q3 2019 Office Submarket Report Chelsea New York Market Chelsea Office OFFICE SUBMARKET REPORT Submarket Key Statistics 2 Leasing 3 Rent 8 Construction 10 Sales 14 Sales Past 12 Months 16 Supply & Demand Trends 18 Rent & Vacancy 20 Sale Trends 22 10/16/2019 Copyrighted report licensed to Okada & Company - 246101. Overview Chelsea Office 12 Mo Deliveries in SF 12 Mo Net Absorption in SF Vacancy Rate 12 Mo Rent Growth 295 K (94.8 K) 7.2% 1.3% Chelsea, like most of the Midtown South area, has by the NYC Economic Development Corporation, tech undergone a transformation since the start of the cycle firms are projected to account for nearly 30% of as tech firms have flocked to the area. Although demand incremental office-space demand in New York through has been inconsistent in Chelsea this cycle, it has been 2025—a greater share than any industry except particularly impressive over the past 18 months as healthcare. With its generous stock of pre-war industrial positive absorption was recorded in five of the past six buildings, Chelsea is poised to continue capitalizing on quarters. As a result, vacancies have taken a plunge and demand from tech firms willing to pay up for space with now sit below their historical average as of 19Q3. Net character. absorption has been more consistent for 4 & 5 Star inventory than lower-rated properties, with the flight to Chelsea’s rent growth in this cycle ranks in the top five of quality trend permeating throughout Manhattan. all New York submarkets, but performance has declined Occupancies have also been helped by limited supply more recently as the glut of underway projects has additions in this cycle. In fact, most construction activity limited rent growth across the metro, especially in has centered on office demolitions and conversions and Manhattan submarkets. Rents losses appear to have the inventory has declined since the start of this cycle. A stopped through three quarters of 2019, as robust few projects are underway, but most impending supply- demand from tech firms should keep rents stable moving driven pressure will come from developments in nearby forward. submarkets. Increased tenant interest has been a boon for the Tech and creative tenants are the centerpieces of submarket as investment volume has surpassed $1 Chelsea’s demand story as numerous TAMI (tech, billion in most years of the cycle. Sales boomed in 2018, advertising, media and information services) firms have reaching about $4 billion—fueled by Google’s March taken space here lately. Google expanded in 2015 at acquisition of Chelsea Market for $2.4 billion. Google’s both 85 Tenth Ave. and 75 9th Ave., and will take expansion plans did not end there, as the tech company 260,000 SF at RXR and Young Woo’s SuperPier. The paid nearly $600 million to purchase the adjacent Milk tech giant recently purchased the Milk Building at 450 W Building in May, which has helped sales volume reach 15th Street in 19Q2, with plans to immediately occupy $1 billion as of 19Q3. more than 100,000 SF. According to a study published KEY INDICATORS Net Absorption Under Current Quarter RBA Vacancy Rate Market Rent Availability Rate Deliveries SF SF Construction 4 & 5 Star 8,477,134 10.3% $86.30 8.1% 6,675 0 336,893 3 Star 33,429,778 6.3% $60.89 9.6% (139,604) 0 0 1 & 2 Star 2,563,694 8.4% $77.98 9.4% (5,155) 0 0 Submarket 44,470,606 7.2% $66.86 9.3% (138,084) 0 336,893 Historical Forecast Annual Trends 12 Month Peak When Trough When Average Average Vacancy Change (YOY) 0.8% 7.1% 6.5% 11.2% 1994 Q4 2.9% 2000 Q2 Net Absorption SF (94.8 K) (12,625) 29,321 1,325,281 1998 Q1 (2,372,852) 2001 Q4 Deliveries SF 295 K 76,498 128,660 508,980 2018 Q4 0 2015 Q3 Rent Growth 1.3% 6.8% 1.1% 35.7% 2000 Q4 -22.5% 2003 Q1 Sales Volume $2.3 B $969.3 M N/A $4.9 B 2011 Q3 $7.9 M 1995 Q2 10/16/2019 Copyrighted report licensed to Okada & Company - 246101. Page 2 Leasing Chelsea Office Since the start of the cycle, submarkets in Midtown by taking large blocks of space as evidenced by the South have transformed due to heavy interest from TAMI 220,000 SF lease at 620 Avenue of the Americas in tenants. The Chelsea submarket, in particular, has seen 19Q2—the neighborhoods largest new lease of the year. demand driven by some of the world's largest tech firms. Since 2018, the coworking firm has added four locations Google, for example, has had its Chelsea footprint grow sized above 50,000 SF. As vacancies have declined in to nearly 1.5 million SF, with no signs that its expansion the submarket, WeWork has opted to add more mid- will slow. The tech giant has already committed to sized locations for its HQ platform which aims to offer occupying the full 260,000-plus SF of office space at full-floor opportunities to growing companies. RXR and Youngwoo & Associates’ SuperPier when it delivers in 2019. With plans to double its NYC headcount While the submarket has done well with companies over the next ten years, Google has started purchasing looking for small, pre-war spaces, it could struggle to assets in the submarket as opposed to leasing them attract companies in the market for large continuous directly from landlords. In March 2018, Google, office blocks. Only half a dozen existing properties have purchased the 1.2 million SF Chelsea Market for $2.4 available blocks comprising more than 50,000 SF, and billion which followed the nearly $600 million purchase of the only sizable construction project underway is fully the adjacent Milk Building in May 2019—with plans to pre-leased to Google. Both Spotify and Mediaocean slowly move into space as leases in the building expire in recently left Chelsea for Lower Manhattan, as the the next few years. submarket could not satisfy their expansion needs. With that said, if large spaces in desirable assets do come As Google has assembled its massive campus, it has online, they will likely attract heavy interest as demand attracted other tech firms to the submarket. In one of the continues to outpace supply. largest Chelsea deals signed in 2019, Yext signed a 146,000 SF lease at 61 9th Avenue in April. The tech The submarket’s residential boom has also been a company paid a premium, above $90/SF, to secure one benefit to the office market. More than 3,500 rental units of the few desirable large blocks of available space in have been built here since 2014, and multifamily projects the submarket—a necessity for a company that is aiming under construction are expected to add another 500 units to add 500 employees in the coming years. The in the coming years. The area’s cultural amenities, abundance of TAMI tenants interested in Chelsea has including the High Line and the Whitney Museum, are a helped push vacancies down considerably since the end draw, as is the desire of many New Yorkers to live close of 2017. to work. Accordingly, the number of households in Chelsea has grown by approximately 13% over the past As interest has risen from creative tenants, coworking five years—more than three times the metro average. As firms have added more locations in the submarket in an C-Suite executives have moved into Chelsea’s wildly effort to appeal to growing occupiers who do not have popular Meatpacking District, their desire to be able to the room to expand in their current building, but wish to walk to work has been the driving force for relocations remain in the submarket. WeWork, whose headquarters into the submarket. are in Chelsea, has been the most active of these firms 10/16/2019 Copyrighted report licensed to Okada & Company - 246101. Page 3 Leasing Chelsea Office NET ABSORPTION, NET DELIVERIES & VACANCY VACANCY RATE 10/16/2019 Copyrighted report licensed to Okada & Company - 246101. Page 4 Leasing Chelsea Office AVAILABILITY RATE 10/16/2019 Copyrighted report licensed to Okada & Company - 246101. Page 5 Leasing Chelsea Office 4 & 5 STAR MOST ACTIVE BUILDINGS IN SUBMARKET - PAST 12 MONTHS Property Name/Address Rating RBA Deals SF Vacancy (QTD) Net Absorption SF (QTD) Chelsea Arts Tower (CAT) 88,599 2 11,280 22.9% 4,200 543-545 W 25th St 512W22 175,000 4 30,646 98.6% 2,475 512 W 22nd St 40 Tenth Ave 156,938 3 42,106 62.4% 0 156 Fifth Avenue 220,000 3 35,700 10.8% 0 156 Fifth Ave 12 W 21st St 63,870 2 10,548 8.3% 0 541 W 25th St 8,305 2 8,305 31.9% 0 412 W 15th St 144,273 6 80,998 46.0% 0 31-37 W 27th St 145,856 5 62,691 26.8% 0 High Line Building 105,000 4 31,886 0% 0 450 W 14th St 275 Seventh Ave 729,714 4 57,005 10.5% 0 61 9th Ave 167,170 1 145,741 87.2% 0 521-531 W 25th St 46,897 1 2,000 16.1% 0 30 W 26th St 97,900 1 4,356 0% 0 245 W 17th St 149,577 1 147,877 0% 0 16 W 23rd St 11,500 1 2,500 21.7% 0 1165 Broadway 41,095 1 1,415 14.4% 0 625 Avenue of the Americas 160,000 1 35,156 22.0% 0 249 W 17th St 131,717 1 72,000 0% 0 90 Fifth Ave 138,211 1 10,498 0% 0 675 Avenue of the Americas 311,000 1 28,687 0% 0 10/16/2019 Copyrighted report licensed to Okada & Company - 246101.