When a landmark 11-story building at the intersection of New York’s Union Square and Flatiron District neighborhoods cleared out in the pandemic, Nicholas Haines saw that as a good thing.

The CEO of owner and developer Bromley Companies, who is overseeing a $100 million overhaul at 122 Fifth Ave., said it allowed the full renovation of a 122-year-old structure. The project is evidence of how the pandemic’s effects, in some cases damaging, have created a potential path of future prosperity for certain properties, especially in some neighborhoods of the largest U.S. real estate market.

Located between 17th and 18th streets, the 300,000-square-foot building became empty for the first time in decades after its longtime tenants, Barnes & Noble and Gap, respectively, moved out right before and during the pandemic, Haines said. Barnes & Noble opened its corporate headquarters at the location in 1987, while Gap debuted its store there in 1994, according to Bromley’s website.

“We have this once-in-a-generation opportunity to have the retail and office empty” at the same time, Haines said in an interview. “It was more a generational building for us. We are going to own it forever. We can dream a little bigger about a bigger reposition of the [building]. … We had the conviction that if we can do something really unique, our experience is you are going to find somebody with whom that will resonate.”

That vision paid off in Bromley landing Microsoft as an anchor office tenant last year after marketing the property in fall 2020, Haines said. Microsoft’s ad tech team will occupy 150,000 square feet, and Bromley is creating a separate entrance on Fifth Avenue for the Seattle software giant as well as an amenities space, he said.

“Tech companies want to be in this general vicinity” in Midtown South, Newmark Vice Chairman Peter Shimkin, whose team represented Bromley in the deal with Microsoft, told CoStar News. “Microsoft wanted to make their mark in Midtown South. This building speaks to the tech sector’s image. [It] checks a lot of boxes.”

Microsoft isn’t the only tech company seeking a presence in the Union Square and Flatiron neighborhoods. SL Green, Manhattan’s largest office landlord, said in March IBM signed a 16-year lease to become the anchor tenant at its One Madison Avenue property right across from Madison Square Park and near the iconic Flatiron Building. IBM plans to consolidate its offices and move all of its New York-based employees to the top-tier redevelopment.

Jennifer Falk, executive director of nonprofit organization Union Square Partnership, said companies “want what Union Square has to offer, which is a rich 24/7 community. Their employees don’t want to come back to a purely commercial neighborhood that’s purely a business district. … The pre-pandemic mentality is [keep] the tenants inside the building with beautiful common areas and free food and certain types of amenities. In a post-pandemic world, employees are saying that’s not enough. They want to walk outside the front door of their building and be in a vital and vibrant neighborhood like Union Square. ... There’s always something going on.”

The neighborhood also has the benefit of the famous Union Square Greenmarket that’s open four days a week and helped drive foot traffic to the area even during the height of the pandemic, Falk said.

“We were not a ghost town like some other commercial districts,” she said. “A lot of businesses are betting on that and know that Union Square is going to be a neighborhood that carries through.”

In another example of the neighborhood’s appeal, she said 80 ground-floor retail leases have been signed during the pandemic in Union Square, including 50 this year, an accomplishment she said was unrivaled by other markets in the city.

Haines’ father, William, Bromley’s chairman, founded the New York firm in 1972. The firm bought 122 Fifth in 1979 and now owns several million square feet of retail, residential, office and industrial real estate throughout the Northeast, South and Midwest in cities including Tampa, Florida, and Champaign, Illinois.

After what Haines described as “lots of father-son discussions,” the big makeover of 122 Fifth, which originally opened in 1900, began during the pandemic. The project involves a horizontal expansion of the property by adding an adjacent office building on a parking lot Bromley has owned for 30 years.

The firm also used the air rights it acquired six years ago to build a brand-new rooftop pavilion and outdoor terraces that total 13,000 square feet, Haines said. The renovation involves relocating the historic building’s bathrooms and elevators and moving its lobby from Fifth Avenue to 17th Street. Haines said that creates “big, wide-open floor plates” without elevators or bathrooms interrupting them.

The property’s roughly 28,000-square-foot floor plate is “very rare” and among the largest in the “Lower Fifth” section of Manhattan, according to Haines. The redevelopment plan also includes amenities such as a large bike room on the ground floor, he said.

The new portion of the redevelopment project celebrated its topping-out last week.

With the pandemic, outdoor space is “very important, especially to attract companies like Microsoft,” Haines said, adding that besides the rooftop space, the combination of “the old and the new,” the loft-style ceilings, and the big floor plates helped lure the tech company.

Shoe brand Allbirds, popular with tech industry workers, has signed a retail lease to occupy 4,500 square feet on the ground floor and 3,500 square feet on the lower level.

Haines said Bromley is “talking to a bunch of other tenants” and has “leases out” with two retail tenants. It’s also talking to other office tenants and is “getting good interest” from a mix of professional services and tech-related businesses.

Even with the slow return-to-office rate and other market concerns, “we are very bullish on this neighborhood,” he said.

And though not every office tower will be able to land a coveted tenant such as Microsoft, “there’s certainly enough tenants that want to be in a great location and in a great building,” Haines said. “We feel like we have something that will resonate with tenants in good and bad times. Rents are going to go up and down for sure. We can be very competitive with the product we have.”

Microsoft already has three offices in Manhattan, with 11 Times Square at the intersection of 42nd Street and Eighth Avenue in midtown its largest New York office spanning 205,462 square feet, according to CoStar Group data. Based on square footage, the data shows 122 Fifth is set to become the firm’s second-largest office in the city.

Thanks in part to the IBM lease, the combined Union Square and Flatiron office markets saw a first-quarter net gain of 255,600 square feet between tenants that moved in and those that moved out, the best performing market in Manhattan on that count, according to a JLL report, which tracked a total of 20 areas.

Midtown South, which according to JLL includes Union Square and Flatiron alongside others such as Greenwich Village, the Lower East Side and Hudson Square, had 444,000 more square feet occupied than emptied out in the first quarter, in contrast to the net loss seen in both downtown and midtown Manhattan clusters.

Besides IBM and Microsoft, the broader Midtown South area recently also saw the topping out of New York’s first speculative office building during the pandemic in the Hudson Square market, where Google has spent billions for its second mega New York campus after the one it has in the Chelsea area to the north.

Midtown South for the first time in decades beat midtown Manhattan, where steel-and-glass buildings have long been the hallmarks of New York’s office market, as the most expensive office cluster in the first quarter, according to a Colliers report based on its separate definitions of those markets.

Tenants from the technology, advertising, media and information sector, known as TAMI, have “been attracted to Midtown South for decades because of the brick-and-mortar buildings and the proximity to the nightlife [in neighborhoods] like SoHo and Greenwich Village and Chelsea,” Frank Wallach, executive managing director of research and business development of New York at Colliers, has told CoStar News.

The growing appeal of Midtown South aside, the market’s about 81 million square feet in office inventory is less than 30% that of midtown Manhattan’s 283.5 million and also short of downtown’s 100 million-plus square feet, according to the JLL report.

There are also signs that midtown remains New York’s reigning office market. Office leasing volume in the Grand Central Terminal area and around corporate headquarters-heavy Park Avenue totaled 11.5 million square feet since the start of the pandemic in New York in March 2020 through May of this year, SL Green said last week in a presentation, citing Newmark data.

That makes the area the strongest performer in Manhattan during the pandemic, more than double the second-best performer, Times Square South, with 5.5 million square feet, followed by 2.5 million square feet for a portion of the west side, according to the data.