Construction Update: The Coach Tower
At the current pace of leasing, the Coach Tower will be at 100% occupancy before the building rises to the first floor. According to Hudson Yards promotional material, 42 out of 52 floors are spoken for. It is old news now that Coach has agreed to buy approximately 750,000 square feet in the tower at around $1,000 per square foot, and may purchase another 100,000 square feet on top of that. What hasn’t been discussed is why Coach agreed to take this much space; exploring the root cause may shed light on the future of Hudson Yards, and whether more fashion companies will soon be expanding in the neighborhood.
According to Real Estate Weekly, Coach currently leases about 475,000 square feet in three buildings, including an older headquarters building and offices in 450 West 33rd Street, a massive structure that might be mistaken for a converted mausoleum – Coach’s deal to move to Hudson Yards amounts to a 63% increase in space.
Coach’s expansion is interesting in light of recent reports indicating shrinkage in office demand on a per employee basis, due in part to the popularity of shared office space and increased telecommuting. An oft-cited statistic is that office tenants lease about 250 square feet per employee. Information provided to the city indicates that 1,600 Coach employees will work in the new headquarters. Unless a hiring binge is planned, each Coach employee will have space equivalent to a studio apartment in the new tower.
There are several reasons why the ‘accessible luxury’ brand may be expanding leasing in the Hudson Yards. For one thing, the company has grown phenomenally since 2000 and boasts a Google-esque profit margin of over 20%, so they can afford to splurge. Meanwhile, the Hudson Yards deal was sweetened by a 40% tax break for 20 years – another major incentive for a large lease.
At any rate, Coach’s expansion begs many questions – why is Coach bucking the trend of companies reducing office space per employee, and are fashion firms immune from the trend of downsizing? Is Coach set to expand its corporate office with a slew of new hires? And what about the history of corporate decisions to splurge on lavish headquarters – is this likely to be a good decision for Coach?
Finally, it should be noted that the New York City government is subsidizing a highly profitable company that had not threatened to leave the City – Coach’s expansion should be applauded and the company will continue to anchor Midtown West, but if massive office complexes need subsidies to begin construction, are they really worth it? If Coach’s increase in leasing is any indicator, the answer may be yes – at the very least, the Coach Tower’s future design is excellent.