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Good news for the Manhattan office market comes in several, much-reported forms — declining vacancy, investment-sale price upticks and anchor-tenant commitments at glamorous “trophy” buildings.
But often overlooked are expansions, extensions and renewals of existing leases. They’re a main driver of success especially at Empire State Realty Trust, the publicly traded owner of nine, mostly prewar office towers — including the fabled Empire State Building.
To ESRT Chairman and CEO Anthony Malkin, they explain why the REIT’s 7.8 million square feet of Big Apple offices were 94.2% leased in the fourth quarter of 2024 — up 1.6% year-over-year — in a Manhattan market where overall vacancy still hovers around 17.8%.
“We have more than three million square feet of 299 expansion leases with existing tenants since we went public in October 2013,” Malkin said.
ESRT’s buildings are not only mostly leased, they’re also mostly filled with actual human beings despite the work-from-home phenomenon that took hold during the COVID pandemic.
“We no longer talk about [how many are] back-to-work in the office — that’s over,” Malkin scoffed.
King Kong’s favorite skyscraper, all but given up for dead by the New York Times in 2021, is more than 95% leased. Rents in the tower’s mid-rise portion have soared 28% since 2023, and surpass $80 per square foot on similarly situated floors, according to Malkin.
“We have tenants who come to us for what they see as value, a solid landlord and a strong balance sheet. They stay in our buildings and they expand, even as our rents have gone up,” Malkin said.
Case in point: Three very different companies signed for a combined 150,000 square feet of renewals and expansions at three buildings this month. Such modest-size deals have an outsized impact on the fortunes of ESRT as it gears up for an April 30 investors call.
The previously unreported leases were for Gerson Lehrman Group, which renewed on over 77,000 square feet at One Grand Central Place; Workday, adding 12,338 square feet at the Empire State Building for a total of 39,069 square feet, and Carolina Herrera’s expansion to 34,000 square feet at 501 Seventh Ave.
In 2024 alone, about 450,000 square feet of ESRT’s lease volume came from early renewals with existing tenants “where we proactively extended future expirations,” Malkin said.
For example, Booking Holdings more than doubled its footprint to 64,000 square feet at the Empire State Building.
ESRT often misses out on the media attention given to publicly and privately held competitors that develop new skyscrapers like Tishman Speyer’s Spiral or SL Green’s One Madison.
Architectural ageism is part of the issue.
ESRT’s “youngest” building went up in 1958. The Empire State is nearly 100 years old. Prewar properties are often regarded as obsolete if not altogether over the hill.
Just over two years ago, JLL Chief Financial Officer Karen Brennan told investors, “Buildings constructed since 2015” were “the only category from an age perspective that is recording strong positive net absorption since the pandemic” — a perception that was true at the time.
But, “I suggest every asset category has a top-of-tier, and our buildings are top tier,” Malkin said.
ESRT spent about $725 million to modernize and reposition the Empire State Building since 2005, part of a $1 billion-plus upgrade to its portfolio.
All of ESRT’s properties are now considered to be Class-A despite their ages.
But Malkin says that common distinctions between different classes — such as “trophy,” Class A, Class B, etc. — don’t matter as much as they used to, because owners invested strategically to turn formerly Class B properties into Class-A’s, while some A’s lost their juice.
Although Malkin didn’t mention it, the most extreme case is 135 West 50th St., a half-empty, 1960s-era clunker, was regarded as Class A up to the time last year when the property once valued at $330 million sold for a mere $9 million.
