Now that NYC’s luxury condo market seems to be saturated and less eagerly sought after, office developers are stepping up to purchase the bulk of the available air rights, as reported in the NY Post. “For the first time in four years, people are buying more air rights for offices than for residential condominiums,” said Caroline McLain, President of Tenantwise, which recently released a report based on NYC filings.
Tenantwise, a commercial real estate information service, calculated that the average pricing for office air rights in 2017 hit $315 per square foot. That is the highest price in history. Still, that figure does not include the recapitalization of the Grand Central Terminal air rights a portion of which was sold in 2016 but filed late in 2017.
Air rights have become the talk of the town since the rezoning of Midtown East. The rezoning allowed landmarked buildings to sell their air rights to developers looking to build upwards anywhere within midtown’s 78-block rezoning district. The sudden availability of scarce air rights in the district spurred a frenzy of office development. JP Morgan was among the first to cash in on the rezoning. The financial company purchased 700,000 square feet of air space from Grand Central Terminal, determining to knock down its headquarters 270 Park Avenue. The air rights will transform the 50-story building which had 1.3 million square feet of space, into a 70-story tower boasting 2.5 million square feet of space.
“Office air rights had been selling for the low- to mid-$200s,” said Myers Mermel, Chief Executive of Tenantwise. “But now that JPMorgan Chase has paid in the $300s for synthetic land in Midtown, it’s a bargain. It will bring their overall construction costs down tremendously and make Midtown competitive.” The logic is that the higher you are able to build, the greater your total square footage and thus the lower the cost per square foot. Therefore, even if a developer overpays for the air rights, it can be a bargain.
The office building at 405 Park Avenue, owned by MRP Realty and Deutsche Bank Asset Management, purchased 30,000 square feet of air rights from St. Patrick’s Cathedral in order to renovate. As per the Post, the building paid as high as $385 per square foot for some of those air rights. The price for the rights are likely to continue to rise, as they sell-off. The reason being, that they will soon become scarce again, despite the lack of interest from residential developers.
Of course, outside of midtown, and even elsewhere in Manhattan, prices for air rights are substantially lower. In Hudson Yards, office transactions in 2017 averaged $235 per square foot for air rights, which was down from $258 per square foot in 2016.
By: Ilana Siyance