As New York’s office vacancy rate surged to another record, well-located, top-tier office towers with appealing perks have bucked the trend, benefiting from a so-called flight to quality by tenants away from less up-to-date buildings. Now the latest example of the contrast between the real estate haves and have-nots is coming into sharper focus.

The class of high-end New York skyscrapers is getting closer to welcoming a new member, One Madison Avenue from Manhattan’s largest office landlord, SL Green Realty. The developer opened its last Manhattan trophy tower, One Vanderbilt, in 2020.

The 27-story One Madison celebrated its topping out Tuesday as worries about a looming recession, higher interest rates and other market wildcards have led big-name tenants including Facebook parent Meta to cut back on office expansion plans.

“Even though you could say the broader market has slowed on overall leasing velocity over the last three or four months, that doesn't mean it's necessarily true for every single building,” Steve Durels, executive vice president and director of leasing and real property of SL Green, said in an interview. “There are pockets of strength. New construction is still very strong in the marketplace, [especially] new construction at good locations.”

The building, which broke ground in 2020, has landed tech giant IBM as an anchor tenant. Investment firm Franklin Templeton also signed on at the building in New York’s second-largest office lease this year. Both firms will each have a footprint of well more than 300,000 square feet.

The building is 55% leased, a feat Durels told CoStar News was ahead even that of One Vanderbilt when the 1,401-foot tall building, now 99% leased, was a year away from completion. One Madison’s finish date is expected in late 2023.

One Madison will be about 70% leased by the time it opens, Durels told CoStar, adding that the rents SL Green has been able to command have been in triple digits, from the “low one hundreds” to just under $200 per square foot.

In contrast, in a common refrain across the country, the office vacancy rate in New York, the largest U.S. commercial property market and a key barometer for trends in major cities, has just surged to what CoStar data shows as a record high of 12.3%.

The average market rent in New York has dropped to about $57 per square foot from $60 in the fourth quarter of 2019 pre-pandemic, CoStar data shows.

“Demand continues to be driven by the desire of tenants to primarily occupy the highest quality office buildings, with more vintage assets languishing on the open market,” according to a CoStar report, adding the same trend also has played out on the investment sales front. “Investors are mainly staying away from traditional value-add opportunities in Class B buildings for the time being due to the current surplus of available space in Class A buildings along with the uncertainty surrounding how long it may take these more vintage properties to lease up.”

Also plaguing the office sector is the return-to-office rate in New York, which still struggles to top 50%, the latest data from security firm Kastle Systems’ keycard access swipe data shows. The same trend also holds true in an average of 10 major cities tracked by Kastle.

The flight-to-quality trend has shielded top-tier office properties against market uncertainties that have seized up many lending activities. Lenders at a recent New York University capital markets conference said their wallets are still open when it comes to desirable top-tier properties.

“Flight to quality in real estate is so critical,” Katie Keenan, chief executive of Blackstone Mortgage Trust, said at the conference hosted by NYU’s Schack Institute of Real Estate. “That’s how you can stay ahead of inflation. Being the newest, best asset works well.”

But while top-tier properties such as One Madison and One Vanderbilt may be faring well, the challenges facing many commodity buildings across the city and country loom large.

Starwood Capital Group’s LNR, billed as the world’s largest commercial mortgage special servicer that manages troubled loans, is seeing office properties represent about half of the increase in its workload, Starwood’s Chairman and CEO Barry Sternlicht said at the conference.

Developers such as SL Green aren’t oblivious of the trend. It will begin overhauling properties including 245 Park Ave. that it recently took control of after reaching an agreement via the Chapter 11 bankruptcy of the former owner. The planned $170 million overhaul of the building across from the construction of JPMorgan Chase’s global headquarters at 270 Park Ave. will bring the tower built in 1967 to “modern day standards,” Durels said.

“It's not about the age of the building,” Marc Holliday, SL Green’s chairman and CEO, said in an interview. “It's about the location, and how you reinvent those buildings. It's about how you merge best-of-class office with world-class hospitality. … Put that together, and you'll have a product that will lease and that's what we're doing to all our buildings.”

SL Green, even with some of the top-performing properties, isn’t immune from the market turbulence. The real estate investment trust recently cut its dividend and gave a disappointing forecast, prompting several Wall Street downgrades.

“The operating outlook for NYC office has gotten more challenged into year-end,” Scotiabank analyst Nicholas Yulico said in a note to clients last week, adding SL Green’s occupancy guidance for 2023 may prove optimistic.

SL Green also has announced its plan to develop a casino in Times Square, in what BMO Capital analyst John Kim described as a “further pivot from office to entertainment,” which includes its Summit observatory atop One Vanderbilt. “We believe [SL Green] provided a compelling case to win the [casino] license, boosting Times Square visitors and revenue, but at a significant cost which has not been determined,” he said.

Located across from Madison Square Park and nearby many new restaurants and hotels including the Ritz-Carlton, the 1.4 million-square-foot One Madison, which SL Green has touted as the first major development in Manhattan’s Midtown South in over a decade, also has signed Chelsea Piers Fitness in a 20-year retail lease.

Michelin-starred chef Daniel Boulud will open two new French culinary concepts including a European marketplace that’s inspired by the open-air markets of France as well as a full-service steakhouse. Building amenities will include a 11,000-square-foot roof deck featuring sweeping views that are connected directly to a 7,000-square-foot tenant-only amenity space called The Commons.