After saying landlords are regaining leverage in New York’s premium office market, Vornado CEO Steven Roth said tightening supply and steady demand from financial services, tech and other sectors will keep owners in the driver’s seat for years to come.
“New York is now on the foothills of the best landlord's market in 20 years,” Roth said Thursday on the company’s fourth-quarter earnings call. He also said Manhattan is “clearly far and away the best office,” as well as residential, real estate market in the country.
Vornado’s 2025 office leasing volume of 3.7 million square feet in Manhattan was its highest in over a decade and second-highest year on record, he said.
Demand was led by Vornado’s Penn District redevelopments. At Penn 2, the overhauled tower above Penn Station, Vornado leased 908,000 square feet last year, including 231,000 square in deals done during the fourth quarter at an average starting rent of $114 per foot, several dollars above its full-year average of $109. Vornado expects this year to fully lease the tower, which has reached an 80% occupancy, Roth said.
For a second straight year, Vornado beat other Manhattan landlords to lease the largest overall quantity of top-dollar space, a total of about 2.6 million square feet across 47 deals, driven by both its Penn 2 and neighboring Penn 1 towers with direct access to Penn Station, a JLL study found.
“Not so long ago, $100 rents were rare,” Roth said Thursday. “Now they are ubiquitous in the better buildings. With some rents reaching $200 and even an occasional $300. Why? …There is a profound shortage of 'better' space or it might be that the cost of the new build has doubled and now costs, say, $2,500 per foot to build a new tower in Manhattan. … Even at these higher rents, it's tough … to make a new tower pencil. … These new-builds are multibillion-dollar monsters, which are very difficult for most to finance.”
'Best deal ever'
Against that backdrop, Roth described Vornado’s September purchase of 623 Fifth Ave. office condominium above the flagship Saks Fifth Avenue department store for $218 million, or $569 per square foot, as “the best deal ever.”
“The location is the middle of everything with unique light and air and city views,” Roth said. He added that the property is surrounded by New York’s iconic landmarks such as Rockefeller Center and St. Patrick's Cathedral with JPMorgan Chase's new headquarters also nearby at 270 Park Ave.
“The building is substantially vacant, which is a huge advantage to us as a redeveloper.” He estimated the redevelopment, including tenant concessions, will cost about $1,200 per square foot as Vornado plans to turn the property into “the 220 Central Park South” boutique office building. Vornado's luxury condo tower 200 Central Park S. has recorded a string of record-breaking sales.
“We will be creating here [at 623 Fifth] a new soup-to-nuts building, every bit equal to a ground-up new build for half the price in a premium platinum location,” Roth said. “We will deliver to tenants by the end of 2027, half the time of a new-build. …I’m in love with this asset.”
He said he expects the project could itself alone add 11 cents to Vornado’s per-share profit.
He also isn’t concerned about the bankruptcy filing of Saks and the uncertainty surrounding the Saks Fifth Avenue flagship.
“Any outcome to the Saks Fifth Avenue bankruptcy will be good for us,” Roth said.