New York Times Co. will vacate and sublease at least eight floors of its headquarters building in Manhattan as the publisher seeks new sources of revenue amid a decline in print advertising.
The company’s current office setup has made employees “less collaborative” and it was “too expensive to occupy this many floors when we don’t truly need them,” the Times said in a letter to employees that was filed Friday with regulators. The newspaper expects “a substantial financial benefit” from the rental income. About 400 employees will temporarily move to a nearby office while the building is reconfigured.
The Times’ decision comes as it tries to transform its declining print business for the digital age. Other media companies also have turned to real estate to bolster their finances. In September, Tribune Media Co., which spun off its newspaper businesses in 2014 but retained their real estate, sold both the Los Angeles Times building and the iconic Tribune Tower in Chicago.
The New York Times moved into its building in 2007. Two years later, it agreed to sell the space for $225 million to pay debt and lease the building for 15 years. It retained an option to buy back its stake from new owner W.P. Carey & Co., a New York-based real estate investment firm, in 2019 for $250 million. The transaction covered 21 floors, or about 750,000 square feet (69,700 square meters), of the 52-story building on Eighth Avenue between 40th and 41st streets.
The third-quarter average for top-tier office space in the Times Square market, which includes the New York Times Building, is $85.74 a square foot, said Keith DeCoster, director of U.S. real estate analytics at commercial-property brokerage Savills Studley. That’s higher than the Manhattan-wide average for that quality of space, at $82.38, and is up from $83.62 a year earlier.
Sublease tenants typically pay a substantial discount from the market average, though they deal with the downside of lease terms being dependent on the direct tenant’s agreement. In many cases, the subtenant will negotiate with the building owner for its own lease once the original tenant’s expires.
The Times could be in an advantageous position, DeCoster said.
“It’s not as though they’re competing with a big pool of sublet space at this point in time,” he said. “There are not many big blocks of sublet space out there.”
The paper has seen a surge in online subscribers since the election on Nov. 8. Last month, the Times posted third-quarter earnings that beat analysts’ estimates after digital advertising revenue increased for the first time this year and growth in online subscribers almost doubled from the second quarter. However, the decline in print advertising sales accelerated and total advertising revenue fell.
(c) 2016, Bloomberg ยท Gerry Smith, David M Levitt
