Q1 2024 Real Estate Market Report

Q1 2024 LOWER MANHATTAN REAL ESTATE MARKET REPORT

LOWER MANHATTAN REAL ESTATE MARKET REPORT

Lower Manhattan office leasing improved over the start of 2023 but remains below both the five-year and postpandemic quarterly averages. Technology and legal services firms accounted for over 60% of leasing activity as several substantial deals were completed at a mix of office properties downtown. Vacancy rates inched up again despite newly announced residential conversion projects creating the first positive absorption for the first time in a year. While the office market continues to struggle, other sectors of Lower Manhattan’s economy have expanded. Sixteen new retailers opened in Q1 and a number of other prominent new openings are expected this spring. Tourism continues to rebound with 2023 visitorship increasing 27% from 2022 and hotels in the district enjoying the highest Q1 average daily room rate in eight years.

Downtown Leasing Activity Improves Year over Year While Still Lagging Behind the Five-Year Average

Lower Manhattan recorded 582,000 sq. ft. of office leasing in the first quarter, a 16% improvement compared to Q1 2023. Overall, Manhattan leasing was stronger in Q1 than the same time last year with the borough as a whole seeing a 22% increase in leasing year-over-year. Midtown saw substantial year-over-year growth with leasing increasing 47%, while Midtown South was the only submarket to experience negative year-over-year change.

Lower Manhattan’s Q1 leasing total declined only a single percentage point from Q4 2023. Leasing activity in the Midtown and Midtown South submarkets fell far more precipitously quarter-over-quarter. Midtown saw 3.71 million sq. ft. of leasing activity, a 13% decline from Q4 2023, and Midtown South saw a more drastic 55% decrease over the same period with only 683,000 sq. ft. of

Lower Manhattan Annual New Leasing Activity, 2017-2024

Source: CBRE

582,000

Square Feet Of New Leasing In The First Quarter — 16% Above The Q1 2023 Total

activity.

Leasing activity in the downtown market has now fallen 35% below the five-year quarterly average. Leasing also lagged behind the post-pandemic (beginning in 2021) quarterly average by 18.9%.

Technology and Legal Sectors Bolster Q1 Leasing

The technology sector led the leasing charge in Q1, taking up 31% of total space leased. Rippling, an IT, HR and finance workflows platform, had the second largest deal of the entire quarter, relocating from Midtown East and taking up 68,680 sq. ft. of space at 4 World Trade Center. Circle Internet Financial Limited, a peer-to-peer payments technology company, signed a 34,328 sq. ft. lease at 1 World Trade Center. CoreWeave, a specialized cloud provider delivering a massive scale of GPU-accelerated compute resources, signed a 17,421 sq. ft. lease at the top floor of 33 Whitehall St. and is relocating from a Brooklynbased WeWork.

The legal industry captured 20% of market activity, including Marshall Dennehey Warner Coleman & Goggin P.C.’s 22,000 sq. ft. lease at 88 Pine St. (a relocation within the building) and Rosenbaum & Rosenbaum P.C.’s 20,000 sq. ft. lease at 100 Wall St. (a relocation from within the downtown market). The government sector, which led leasing in 2023, accounted for 14% of Q1 leasing, the main tenant being NYS Office of Temporary & Disability Assistance, which relocated from Brooklyn and took 42,491 sq. ft. at 26 Broadway.

The largest lease of the quarter, however, came from the education/not-for-profit sector, where Success Academy Charter School expanded its footprint to 93,937 sq. ft. at 120 Wall St.

Vacancy Rates Continue Their PostPandemic Climb across Manhattan

Lower Manhattan’s overall vacancy rate increased to a record high of 24.7% after moderating during the second half of 2023. Compared to Q1 2023, this was a 2.1% increase, the largest year-over-year rise among the three major submarkets. Midtown and Midtown South also saw their highest overall vacancy rates on record, 22.8% and 23.4%, respectively.

A handful of direct and sublet space additions have contributed to Lower Manhattan’s rising vacancy this quarter. For example, 168,000 sq. ft. of space at 14 Wall St. and another 161,000 sq. ft. chunk at 200 Liberty St. were added to the market. The top sublet additions included EmblemHealth’s 173,000 sq. ft. sublet space at 55 Water St. and AECOM’s 91,000 sq. ft. sublease at 125 Broad St.

Class A space fared slightly better than the aggregate, posting a 24% vacancy rate, which is still the highest Class A vacancy rate on record. Midtown recorded a 22.3% class A vacancy rate, its highest ever as well. Midtown South recorded only a slightly lower class A rate of 23.4%. Class B properties continue to face serious challenges and have recorded record high vacancy rates for Lower Manhattan and Midtown South as well.

Overall Vacancy Rates by Submarket

Source: Cushman & Wakefield

Class A Vacancy Rates by Submarket

Source: Cushman & Wakefield

175 Water St. to Become Fashion, Arts, Culture and Technology Mixed-Use Hub

The former AIG headquarters at 175 Water St. is being transformed into an innovative hub for emerging fashion, arts and creative tenants. WSA Waterfront LLC and Milky 100 LLC, owners and operators of 175 Water St., have launched a comprehensive repositioning plan for the building. The ambitious and unique project will be supported by $100 million in tax breaks awarded by the NYC Economic Development Corporation as part of the Manhattan Commercial Revitalization (M-CORE) program, launched last year to incentivize building owners to convert older, Class B properties into amenity rich Class A spaces.

Upon completion, 45,000 sq. ft. will be devoted to retail, 425,000 sq. ft. to offices, 73,500 sq. ft. to creative makerspace, and another 73,500 sq. ft. to amenity space. Innovative additions to the building will include a conceptual department store featuring tenants’ products and showcasing immersive retail experiences. Additional amenities will include shared production facilities including audio recording, podcast, photography, post-production and extended reality studios. Tenants will also be able to showcase their art work and host events in art galleries and film screening rooms. There will also be restaurants, bars, a test kitchen, and health and wellness amenities.

This innovative project has the potential to showcase a new way to successfully tenant older office properties and has already brought a bevy of unique tenants to Water St.

Asking Rents Remain Steady Over the Quarter, Class A Rents Fall

First quarter overall rents remained steady in Lower Manhattan, inching upwards since last quarter to $55.79–albeit by only 0.1%. Lower Manhattan’s overall rent was 5.6% below the five-year quarterly average, 2.6% below the postpandemic quarterly average and the second lowest since 2015.

Along with Lower Manhattan, asking rents did not fluctuate much across the city in comparison to Q4 2023. Midtown rents were the same as they were last quarter, $78.23, while Midtown South rents fell by half a percentage point to $77.81.

Compared to Q1 2023, the Lower Manhattan overall asking rent underperformed its northern counterparts, seeing rental rates fall by 1% while Midtown and Midtown South experienced increases of 1.7% and 3.2%, respectively.

In contrast to the general steadiness of the overall rent market, Class A rents declined in each submarket. In Lower Manhattan, rates fell by 1% over the quarter and 1.2% over the year to $59.16. Midtown South saw similar negative rent changes while Midtown fared only slightly better, experiencing negligible quarterly rent decline and positive rent growth compared to Q1 2023.

First Quarter Property Sales

Office Building Sales:

• 74 Broad St.: Caspi Development offloaded its six-story Financial District office property for $19.6 million in a deed of foreclosure sale to Nassimi Realty.

• 222 Broadway: Jeff Gural’s GFP Real Estate is in contract to purchase 222 Broadway for $150 million. This is far less than the $502 million DWS paid in 2014. Further, GFP plans to convert this office property to residential. At 780,000 sq. ft., 222 Broadway could be converted into anywhere from 600 to 800 apartments. The office portion is occupied by Bank of America, which covers 31% of the available space in the building. The real estate giant is looking for a $200 million construction loan to finance the conversion project.

• 111 Wall St.: InterVest Capital Partners is in talks to turn 111 Wall St. into rental units. The building is 1.2 million sq. ft. and could be converted into an estimated 1,300 units.

Source: Cushman & Wakefield

Source: Cushman & Wakefield

Mixed-Use Building Sales:

• 112 Liberty Street: Hidrock properties sold their development site for $21.7 million, almost a 50% discount compared to what it paid in 2018. The AC Hotel was meant to be constructed at the site, a 112,000 sq. ft. property. The buyer was an entity that shares an address with Flushing, Queens-based real estate manager Hiwin Group USA and its CEO Xiaogang Wang.

• 70 Pine St.: DTH Capital and Rose Associates have secured a $395 million refinancing for 70 Pine St., the 67-story, mixed-use tower that was converted from an office building into a hotel and luxury apartment complex in 2016.

Mixed-Use Building Sales:

• 100 Wall St.: Barings is looking to sell 100 Wall St. for less than half of the $270 million price tag the firm paid a decade ago, asking $125 million for the property.

Residential Conversions Create Positive Absorption in Lower Manhattan as Downtown’s Mixed Use Appeal Grows

Return to Office and Pedestrian Traffic Show Positive Momentum

Thanks to GFP Real Estate’s acquisition of 222 Broadway and Intervest Capital Partners’s plans to convert 111 Wall Street, 1.6 million sq. ft. of office space exited the office market in Q1. This has left Lower Manhattan with 669,000 sq. ft. of positive absorption, the first time in a year that more office space has left the market than entered.

These Lower Manhattan residential conversions have resulted in a changing office market and a growing residential presence. The state of the downtown office market has improved as a consequence, given that vacant, low-demand space is leaving the market. Although inventory will shrink, the health of the commercial real estate market will improve as supply becomes better aligned with demand.

The recently adopted state budget also includes a package of housing related programs, including a long awaited replacement for the expired 421(a) tax abatement, a new incentive program designed to encourage affordable housing in office-to-residential conversions and removing the prohibition on residential density exceeding 12 FAR. Taken together, this package of policy changes may incentivize additional residential conversion projects in Lower Manhattan.

RETAIL

Sixteen retailers opened in the first quarter of 2024. Approximately two thirds were food and beverage businesses, including:

• Kamasu, which serves open faced temaki hand rolls with an a la carte menu of maki, specialty futomaki and donburi opened at 111 John St.

• Drip Coffee, which has locations in Brooklyn and Soho now has an outpost at 32 Old Slip.

• Capital Grille, a fine dining restaurant, reopened on the first floor of 120 Broadway.

• ZiZi Wine Bar opened at 1 Dutch St.

• Serafina Vino E Cucina, the classic Italian restaurant chain, reopened at 30 Broad St. and is slightly different from the original Serafina at that location.

• Caravan Uygjur Cuisine, serving Central Asian food as well as halal cuisine, opened at 60 Beaver St.

• Mikado, a sushi and ramen restaurant, opened at 164 Pearl St.

• Susukino Ramen, a new ramen and sake venue, opened at 34 Water St.

• Conwell Coffee Hall, an Art Deco cafe, is now open to the public at 6 Hanover Square. The food menu was consulted on by chef Jonah Reider.

• Norm’s Pizza, a pizza restaurant chain, opened at 8 Cortlandt St.

• PJ Clarke’s Waterfront Oyster Bar, an extension of the preexisting P.J. Clarke’s, is now open at Brookfield Place.

Five retail and entertainment locations opened in Q1 as well, including:

• Lilly’s Bordello, a space hosting burlesque, cabaret and drag shows opened at 47 Stone St.

• Bark Street, a doggie daycare and boarding facility, opened at 80 Maiden Lane.

• Mercer Labs Museum of Art & Technology, a new technology-forward museum featuring AI art and digital, immersive art spaces, opened at 21 Dey St. From virtual reality simulations to hands-on experiments, the museum promises an engaging experience for all ages, sparking curiosity and fostering creativity.

• Science Playground opened a recreational space with two play structures in the shape of animals native to the Hudson River, climbing nets and a seat wall at Pier 26.

• Renzo Gracie Jiu-Jitsu Wall Street, a martial arts gym, opened at 22 New St.

Looking ahead, 10 retail establishments announced upcoming openings (several of which are already operational) including:

• Yao, a fine dining Chinese restaurant, has recently opened on the second floor of 213 Pearl St.

• La Grande Boucherie & Omakase Room is eyeing an opening at Trinity Centre at 111 & 115 Broadway. The open date is to be determined.

• Printemps, a luxury French department store, is set to open at One Wall St. later in 2024.

• Los Tacos #1 is set to open at Exchange Pl & New St. The open date is to be determined.

• All’Antico Vinolo, the famous Italian sandwich shop, plans to open at Brookfield Place.

• Tutto Calcio Espresso Bar has plans to open at the base of the Artezen Hotel at 24 John St.

• Sanmiwago, a Taiwanese restaurant, is set to reopen after being temporarily closed at 62 William St.

• Club Studio, a fitness center, is eyeing an opening sometime in 2024, though a location is not yet determined.

• Remi Flower & Coffee, a flower and coffee shop, has plans to open later in 2024.

HOTELS + TOURISM

Tourism Continues to Rebound

Lower Manhattan welcomed 9.4 million tourists in 2023, a 27% boost from 2022, as domestic and international travel continues to rebound from the pandemic. Though still below 2019’s 14 million tourists, 2023 tourism numbers indicate a full rebound in the coming years. Also, compared to 2020, the number of tourists has surged by 250%; the number of unique visitors rose considerably, too, by 150% since 2020–and stands at a total of 12.7 million as of 2023.

International visitors made up 54% of Lower Manhattan tourists, nearly double the 28% in 2021. Pre-pandemic, in 2019 that figure was 62%. Additionally, just like 2022, the largest share of international visitors hailed from Western Europe: Germany, France, UK, Canada, Italy and Spain. Also, the share of first-time visitors to NYC (out of all visitors) reached 51% – the highest since 2019.

Lower Manhattan Hits Highest Q1 ADR in Eight Years

Lower Manhattan’s first quarter Average Daily Room rate (ADR) hit $225.69, the highest Q1 rate in the past eight years and notably higher than Q1 2023. The city experienced a year-over-year ADR increase, but rates remain beneath a $200 limit as the citywide tourism market continues to recover. Lower Manhattan has bucked this trend, witnessing a historically strong performance following the two-year slump.

Over the quarter, however, downtown’s ADR declined; but this historical trend is to be expected in the first quarter of any year. In fact, all submarkets (including all of Manhattan) saw quarterly decreases in ADR.

Lower Manhattan hotels also enjoyed the highest Q1 occupancy rate since 2008. At 74%, occupancy declined from Q4 as it always does, but outperformed Q1 2023 by 6%. City-wide occupancy did not perform as strongly as Lower Manhattan’s, remaining unchanged from last year’s Q1 and slightly dipping from Q4 2023.

Hotel Occupancy in Lower Manhattan and New York City

Source: CoStar/STR

Hotel Average Daily Room Rate (ADR) in Lower Manhattan and New York City

Source: CoStar/STR

Lower Manhattan Hotel Development

The current hotel inventory in Lower Manhattan stands at 8,498 rooms across 43 hotels. One new hotel opened in the first quarter:

• The Warren Street Hotel, a new boutique hotel operated by Firmdale Hotels, opened in February 2024 at 86 Warren St. The developers are Solil Management and Firmdale.

RESIDENTIAL

Inventory and Development

Lower Manhattan has 35,104 units in 347 residential buildings. There are 2,979 units in eight buildings under construction and another 3,936 units in nine buildings planned for development, with about 62% currently set to be rental units and 38% to be condos. The total number of units planned for development has increased significantly from last quarter, a 20% uptick in units to come online. During the first quarter of 2024, one new construction project hit the market:

• 125 Greenwich St.: The 88-story tower hit the market with plans for buyers to be able to move in this summer. Sales at the Rafael Vinoly-designed building previously kicked off in 2017, but were paused.

Later in 2024, one additional residential development is expected to wrap construction and open:

• 1 Park Row: Construction topped out at 1 Park Row, a 23-story mixed-use building. The 305 foot-tall structure will yield 103,000 sq. ft. with 58 condominium units in one- to three-bedroom layouts, along with 19,000 sq. ft. of office and retail space on the lower levels.

Over the next several years, seven new developments containing 2,979 units are expected to finish construction:

• 7 Platt St.: Moinian Group is building a new 250-unit tower that will also contain a hotel component. 7 Platt St. is expected to open in 2025.

• 8 Carlisle St.: Excavation continues at 8 Carlisle St., the site of a 64-story residential skyscraper. Designed by Handel Architects and developed by Carlisle New York Apartments and Grubb Properties, which closed on a $86 million loan for the project over the summer, the 712-foot-tall structure will yield 326,221 sq. ft. with 462 residential units, 7,000 sq. ft. of commercial space, and a 60-foot-long rear yard.

• 55 Broad St.: MetroLoft and Silverstein Properties announced the acquisition of 55 Broad St. for $172.5 million from the Rudin Family, who will retain an equity stake in the project. The partnership plans to convert the 410,000 sq. ft. building into 571 market rate apartments and is beginning the construction phase of development.

• 5 WTC: Poised for a potential $31 million government funding boost, Gov. Hochul announced that the 900-foot

residential skyscraper to be built by Silverstein Properties and Brookfield Properties at 5 WTC would have one-third of its apartments set aside as affordable housing.

• 250 Water St.: In late 2021, the Howard Hughes Corporation was approved on its $850 million development project. The firm will convert a parking lot into a 324-foottall building with 270 apartments (including 70 affordable units), Class A office space, retail and community space. The project will generate $50 million in funding for the South Street Seaport Museum, with $40 million generated from the Howard Hughes project and another $10 million committed by the City. The project broke ground in 2022, and remediation has since been certified through the New York State Brownfield Cleanup Program.

Source: Downtown Alliance

Lower Manhattan Residential Pipeline

Residential Rents and Condo Sales Fall in Q1

Median rental rates fell over the quarter, settling at $4,100, following the usual pattern for the beginning of the year. The median rent value is also 3% lower than it was this time last year. Manhattan, meanwhile, saw an uptick in rental rates compared to the previous quarter and is now equal to Lower Manhattan’s ($4,100).

The sales market continued its year-long decline in Q1, so much so that the median sales price fell to $930,000, an eleven-year low. The last time the median sales price for a Lower Manhattan condo was below $930,000 was 2013. Q3 2019 saw a similar sales figure, $932,000. The median sales price for Manhattan overall was $1,049,399, slightly above Lower Manhattan’s median of $930,000 – only the third time the borough has surpassed Lower Manhattan’s median since 2020.

130 Liberty Street

Besides the fact that Q1 sales are always sluggish, interest rates and borrowing costs have remained elevated, creating ongoing challenges for homebuyers.

$4,100

Median Rent in Lower Manhattan

Median

Residential Sales Price

Source: Miller Samuel

Median Residential Rental Price

Source: Miller Samuel

125 Greenwich St.

MAJOR PROJECTS UPDATE

World Trade Center

Site 5

A partnership between Brookfield and Silverstein Properties received approval from the Port Authority and Lower Manhattan Development Corporation (LMDC) to develop Site 5 at the World Trade Center, also known as 130 Liberty St. The site recently served as a Port Authority police depot and the southernmost area continues to function as a temporary public plaza.

The proposed 1.56 million sq. ft. tower is expected to include approximately 1,300 rental apartments, of which at least 30% will be affordable. LMDC approved an override to city zoning rules in order to build a tower larger than local regulations allow. Construction may commence later in the year. 5 WTC will also include roughly 10,000 sq. ft. of nonprofit community space to be occupied by the Educational Alliance, over 190,000 sq. ft. of retail and office space, and a connection to Liberty Park.

It was recently reported that the supertall apartment tower at the World Trade Center is poised for a potential $31 million government funding boost — using money designated after 9/11 for Lower Manhattan job creation and waterfront improvements.

Pace University

In December 2022, Pace announced plans to renovate One Pace Plaza, adding new academic spaces, a modernized residence hall and a new performing arts center. The renovation will include the reconstruction of the lower floors of One Pace Plaza East and upgrades to the dormitory building at 182 Broadway. Construction is expected to be completed in 2026.

The university recently announced the formation of the Sands College of Performing Arts, as it has just finished construction. It is housed within a new performing arts center at One Pace Plaza containing a 450-seat proscenium theater, a 200-seat flexible theater and a 99-seat black box theater. Rob and Pamela Sands gave a $25 million

donation, which is part of a fundraising campaign that includes private donations and $30 million from the state and federal governments.

The new building serves as a replacement for Pace’s 50-year-old tower at One Pace Plaza East. 15 Beekman St. is the third property SL Green has built for Pace in the neighborhood. The developer previously built dorm buildings at 33 Beekman St. in 2015 and 180 Broadway in 2013. The building yields 213,084 sq. ft. and stands 338feet tall. It is alternately addressed as 126-132 Nassau St.

Transportation Infrastructure

Street Reconstruction

Reconstruction of Front Street between Old Slip and John Street began in January 2020 and is planned to be completed in June 2024. Greenwich Street reconstruction, between Barclay and Chambers streets, began in early 2022 and will be completed in October 2025; the adjacent sidewalks at 240 Greenwich St. will also be redone in tandem. Vesey Street reconstruction, between Church Street and Broadway, began in September 2022 and will be completed in September 2024. Nassau Street reconstruction, between Pine Street and Maiden Lane, will be completed in 2025. These projects will replace all underground infrastructure, including water mains, sewers, electric, gas and other utilities, as well as construct new streets and curbs.

Water Street Streetscape Improvements

The city began work on the streetscape and public-realm enhancement project along the Water Street corridor in May 2021, which is estimated to be completed in 2025. The $22.8 million project will transform two temporary public plazas at Coenties Slip and Whitehall Street into permanent public spaces featuring new landscaping, seating and concessions. The project will also plant street trees, rebuild sidewalks and enhance pedestrian safety from Whitehall Street to Old Slip.

Parks and Open Space

Wagner Park

In July 2022 the Battery Park City Authority (BPCA) closed Wagner Park to begin work on the $221 million South Battery Park City Resiliency Project. Plans for the project call for the demolition and reconstruction of Wagner Park and the Wagner Park Pavillion, ultimately elevating the park by 10 feet and installing flood walls, berms and other resiliency infrastructure from the Museum of Jewish Heritage through Wagner Park and Pier A, moving along Battery Place over to Bowling Green Plaza. Construction resumed in May after the Battery Park City Authority successfully appealed an injunction issued by a state Supreme Court judge in December 2022. Construction is scheduled to be completed in 2025.

The Waterfront Alliance announced that the South Battery Park City Resiliency Project has become the 13th project nationally to achieve WEDG® (Waterfront Edge Design Guidelines) verification, which is a national rating system and set of guidelines for resilient and accessible waterfront design.

Climate Resiliency

Resilient Infrastructure

Work continues on parts of the Financial District and Seaport Climate Resilience Master Plan, a resilient infrastructure plan released in 2021 to protect Lower Manhattan from future flooding. The master plan is part of the larger Lower Manhattan Coastal Resiliency strategy, with active capital projects in Battery Park City, The Battery and Two Bridges. The plan calls for the creation of a twolevel waterfront park that extends the shoreline of the East River by up to 200 feet.

The upper level will be elevated by 15 to 18 feet to protect against severe storms, while doubling as public open space. The lower level will be a waterfront esplanade raised three to five feet to protect against sea level rise, while offering access to the East River shoreline. The flood defense infrastructure is projected to cost $5 to $7 billion and could be in place by 2035, pending funding and prioritization by regulatory agencies.

Governors Island

New York Climate Exchange

New York City selected a consortium led by Stony Brook University to develop a $700 million, 400,000 sq. ft. climate research and development campus on Governors Island that will be called the New York Climate Exchange. The campus will include two new classroom and research buildings, student and faculty housing and university hotel rooms. The campus is expected to host 600 college students, 6,000 job trainees and 250 faculty members and researchers. In addition to Stony Brook University, the development consortium includes IBM, Georgia Institute of Technology, Pace University, Pratt Institute and Boston Consulting Group. Governors Island was rezoned in 2021 to allow for the campus. Construction is expected to begin in 2025 and wrap up in 2028. The Trust for Governors Island announced that expanded ferry service running every 15 minutes will begin in the summer of 2024, including the addition of New York City’s first public, hybrid-electric ferry.

New York Climate Exchange

Hybrid City Ferry