Top-dollar new or renovated office properties may command headlines when it comes to bucking the trend of high vacancies in markets such as New York, but demand for higher quality buildings is also helping some older, lower-priced properties in the city.

The latest performance results from the owner of Manhattan’s iconic Empire State Building are a telling example. Empire State Realty Trust’s 7.9 million-square-foot office portfolio, its biggest property type and made up of mostly pre-war Manhattan buildings such as its namesake tourist landmark, posted its ninth straight quarter of more move-ins than move-outs. The portfolio’s lease rate, including those signed but not yet started, rose 2 percentage points to 92.7% in the first quarter from a year earlier and up also from the fourth quarter.

Among Manhattan office space, so-called leasing spreads, or the rent difference the real estate investment trust charged over that in previously occupied space, rose 5.4% in the first quarter, the 11th straight increase.

“There’s a flight to quality” trend “at accessible price points” of tenants demanding modernized buildings that are well located and with desirable amenities, Tom Durels, the REIT’s executive vice president of real estate, said on the company’s earnings call Thursday.

The majority of the company's Manhattan office portfolio is within a nine-minute walk to New York's primary transit hubs, the REIT said. For instance, its "Broadway campus" counts 1333, 1350, 1359 and 1400 Broadway, all of which CoStar data show debuted in 1930 or before.

Off-price chain Burlington last quarter signed a 16-year, 67,865-square-foot lease at 1400 Broadway, for instance, expanding its footprint at the building to more than 170,000 square feet.

Empire State Realty has said it’s spent $1 billion in “modernizing” its office properties, near the Penn Station and Grand Central Terminal transit hubs, with appealing amenities such as outdoor terraces, town halls, and food and beverage options while making them more energy efficient and with good indoor air quality, among qualities the REIT has said tenants want.

The 102-story Empire State Building's recent overhaul included over 65,000 square feet of amenities with a 15,000-square-foot fitness center, a lounge space that can accommodate more than 400 people, and a basketball and pickleball court.

As higher interest rates have seized up financing and led to concerns about increased office-sector defaults, Durels said tenants increasingly look at who the office landlords are and their balance sheet, among key considerations.

Empire State Realty said it has low debt leverage, which Chief Executive Tony Malkin said is the lowest among New York office REITs, and no floating-rate debt exposure, against an average of 13% among its peers. It said it owns 100% of its assets with no joint venture ownership structures that Malkin has previously said are “complex.”

“All tenants look for value,” Durels said, adding the majority of its leasing portfolio is new versus renewals. “We’ve attracted tenants that can afford to pay more [but] they look for value we provide. We provide top-tier product in our price tier. … We are seeing activity from a variety of tenant type. We aren’t tied to any one industry. … Our tour volume is up.”

Nearly 80% of the REIT’s leases are in the range of $56 to $80 per-square-foot in starting rent, the company said in an investor presentation, adding the price range makes up 45%, or the biggest percentage of the market’s leases. In contrast, triple-digit-dollar leases account for just 11% of the market’s leases, and none for the REIT, according to the presentation.

The REIT said it signed 236,000 square feet of Manhattan office space last quarter. Its office occupancy rose 1.1 percentage point to 88.9%. In contrast, New York office leasing volume in the first quarter fell 7% to 4.3 million from a year earlier with the vacancy rate, the opposite of occupancy, rising to 17.5%, according to a JLL report.

“We do expect the company to gain share despite a challenged leasing market as its well located and amenitized space at an affordable price point with a financially sound landlord will resonate well with tenants and bear fruit over the next few years,” Evercore ISI analyst Steve Sakwa said Thursday in a note to clients.

To be sure, the leasing also came at a price. The REIT’s tenant improvement and landlord concessions “came in elevated,” Sakwa said, adding he expects concessions to “remain elevated.”

Other office REITs have had to use concessions and other perks to entice tenants. For example, Vornado Realty Trust Chief Executive Steven Roth described tenant improvements and concessions recently as a “killer” as he said nearly 60% of New York’s office properties are "well past their sell-by date."

Outside of its traditional Manhattan office and retail portfolio, Empire State Realty has also bought multifamily properties, which it said posted a 97.1% lease rate in the first quarter.

Malkin said the frozen market sales activity has begun to "see cracks," adding the REIT sees opportunities to shop across office, retail and residential property types.

Among sources of funding in the market, Malkin expects commercial mortgage-backed securities “will drive sales more quickly than banks” in the market.

Malkin also said New York will be its primary investment focus as it’s cut its exposure outside of the city. The REIT, for instance, recently said it has decided to turn over the keys for an office property in the New York suburb of Stamford, Connecticut.

As to the famed observatory deck at its namesake tower, the REIT said the tourist attraction’s net operating income rose 13% to $16.2 million, back to its pre-pandemic bottom line even against competition from newcomers in recent years such as the Summit observatory at One Vanderbilt, a trophy tower of Manhattan’s largest office landlord, SL Green Realty.