Stephanie Jennings, tri-state director, research for Newmark Grubb Knight Frank
NEW YORK CITY—The New York City Council will likely decide in the coming months the fate of the East Midtown rezoning proposal that could result in millions of square feet of new construction there. However, even if the measure is enacted this year, the economic impacts to the district will likely be mostly long-term.
In a report entitled “East Midtown Renaissance,” Newmark Grubb Knight Frank delves into the controversial East Midtown rezoning proposal and its far-reaching impacts on the approximately 78-block area that encompasses East 39th Street to East 57th Street and includes Fifth, Madison, Park, Lexington and Third avenues.
The report, authored by Stephanie Jennings, tri-state director, research for NGKF, notes that the East Midtown market is at a competitive disadvantage at the moment with an aging commercial property inventory (average age 73 years old) and new construction on the Far West Side and Downtown that offers office tenants more efficient and affordable space.
In addition, current East Midtown zoning regulations allow properties to have a maximum as-of-right floor area ratio of 15. The report notes that the average East Midtown Class A building has a 14.3 FAR, which puts the average property at a little more than 640,000 square feet. The average FAR for a commercial property on the Avenue of the Americas corridor is 22.0, which therefore allows a building of nearly 1.1 million square feet. Also, the East Midtown zoning restricts the transfer of development rights, limiting transfer from landmarks only to adjacent sites. These restricts, NGKF charges, “creates a significant amount of unused floor area that landmarks are often unable to transfer.”
The new proposal, which has met some resistance, would result in an 80% increase in maximum allowable FAR in the area immediately surrounding Grand Central Station. The FAR around Grand Central would increase to 27, while along Park Avenue the FAR would rise to 25. The changes would allow for buildings greater than 1 million square feet in both areas. In other areas of East Midtown, the maximum allowable FAR would range from 18 to 23.
Another key facet of the proposal, which was voted down earlier this year by Community Boards 5 and 6, would allow landmarks to transfer development rights to sites anywhere in the subdistrict for commercial development. The Manhattan Borough Board has approved the measure. The rezoning would also alter East Midtown’s skyline by increasing the tallest building in the area’s maximum building height to 846 feet, which is not far behind 601 Lexington Ave, which stands at 915-feet high
“Despite the challenges that the rezoning effort still faces, the proposal promises to unlock long-term development potential that East Midtown needs to boost New York’s competitiveness with global markets,” Jennings says. “Without these changes, the submarket would continue to be hindered by decades old regulations and left impeded in its ability to compete with new product in the city.”
NGKF says the city has identified 30 potential redevelopment sites that could produce at full build-out approximately 12 million square feet of new development in East Midtown if the new regulations were put in place. However with 29 million square feet of development in the pipeline in Manhattan at the moment, Jennings believes the East Midtown rezoning’s impacts, while beneficial, will be mostly long-term.
She also contends that new redevelopment projects will likely happen in areas along Park Avenue, where rents are averaging approximately $108-per-square-foot and at properties surrounding Grand Central.
“Park (Avenue) in particular but also Grand Central are the most desirable areas within the East Midtown rezoning area that we’re likely to see development happen first,” Jennings says.
She says that properties around Third Avenue, where office rents currently average $76.50-per-square-foot, “will be hard pressed to make the economics of new development work in the near future,” Jennings says.
The one exception to the long-term view is SL Green’s 1.7-million-square-foot One Vanderbilt project, which benefitted from a rezoning that was approved in May 2015. SL Green provided $225 million in transit improvements in exchange for extra floor area at the city-block long property currently under construction between Madison and Vanderbilt avenues and East 42nd and 43rd streets.
Some improvements NFKF would like to see to the current proposal is to expand the potential uses of the properties in the East Midtown area to include residential and hotel uses. “Several sites within the area are unlikely to be rebuilt for office use, but could lend themselves well to hotel or residential conversion,” Jennings notes. “Allowing these alternative uses would encourage improvement of additional sites, drawing more investment, and improving the overall quality of East Midtown.”