Landlords in Long Island City are asking the highest office rental rates in a decade. Rents have risen as vacancy rates have tightened because former Manhattan firms are moving to the neighborhood and no new office construction is on the horizon.
The asking rents for office space at the end of 2012 reached $24.94 per square foot, the highest level since 2003, a new report from Midtown-based commercial firm Newmark Grubb Knight Frank says. That was a sharp 7 percent increase in the fourth quarter from the prior quarter, when the asking rent was $23.34 per square foot, the figures show.
“The lower rents compared to Manhattan and limited availability of space will likely push vacancy rates lower and rents higher in the coming quarters,” the report, authored by Chris Hanaway, director of research at Newmark, said.
In addition, the vacancy rate in Long Island City fell last quarter to 2.7 percent from 3.1 percent in the prior quarter, according to the report.
The office market in Long Island City, across the East River from Midtown, has a total inventory of 7.8 million square feet. That’s just a fraction of the Midtown market with about 267 million square feet, and Midtown South, which has a total inventory of about 102 million square feet.
Driving up pricing in part were tech firms, as well as companies forced from the West Side of Manhattan by higher rents or condemnation of their prior locations, and relocating to Long Island City, John Maltz, president of Greiner-Maltz Real Estate, based in Long Island City, said. “On top of that, there is no new construction,” Maltz said.
Maltz noted that one recent purchase in the neighborhood, Rockrose Development’s $48 million acquisition of the 320,000-square-foot industrial building 43-22 Queens Street, underscored the financial challenges facing a developer of office space.
Rockrose can likely achieve residential rental rates of about $40 per foot, while a new Class A building would be able to charge rents at about $30 per foot, Maltz said, making it difficult to justify the construction of an office building, despite the low vacancy rates.
“$40 per foot supports new construction,” Maltz said. But developers do not want to build a speculative building without a tenant locked in.