The Real Deal New York

Discount office rents spur activity

Meatpacking District among nabes drawing more interest from tenants

August 01, 2010 12:00PM
By Adam Pincus

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High-end construction, rooftop views of the High Line and even rents in the high $70s-per-square-foot range are luring office tenants to the trendy Meatpacking District, where they are taking advantage of sharply discounted prices as tenants are doing throughout Manhattan, brokers say.

For example, one tenant is reviewing a lease that’s been drafted for the top floor of the rehabilitated 414 West 14th Street, where denim giant Levi’s signed a retail lease earlier this year. The tenant, which sources said is in the finance industry, is considering a lease for $77 per square foot — a high price for the Midtown South district, but far below the rents of $120 or more once expected at the building.

The building is not the only one in the Meatpacking District — and in Manhattan for that matter — where rents are sharply discounted, experts say.

“We are still getting mixed signals about the recovery” in the Manhattan market, said Robert Sammons, managing director for research at commercial services firm Cassidy Turley. “You hear a lot anecdotally that tenants are back in the market and tenants are signing deals, but we still have a ways to go before a recovery is complete.”

Yet, there are signals of recovery.

Landlords in Midtown, for example, returned fewer large blocks of space to the market in June. And Downtown, Mort Zuckerman’s Daily News and U.S. News and World Report took nearly 100,000 square feet for under $30 per square foot in a building recently purchased by a new owner.

Overall asking rents in Manhattan remained nearly flat in June, rising by just 3 cents to $47.61 per square foot, the most recent figures available from commercial service firm CB Richard Ellis showed. But in a sign of continued downward market pressure, the availability rate rose by 0.1 points to 14 percent and the volume of space leased fell from the very strong prior month when it was 2.7 million square feet, to 2.2 million square feet, CBRE data showed.

Midtown

Landlords returned fewer large blocks of space to the Midtown market last month, but experts cautioned it was too soon to say whether the slowdown indicated a strengthening of the market.

There were only nine blocks of space of 20,000 square feet or more added to the market between July 1 and July 27, compared with an average of 18 blocks per month during the first half of the year, according to data provided to The Real Deal by tenant advisory firm Studley.

New availabilities included more than 26,000 square feet at 1400 Broadway in Times Square South and just over 20,000 square feet at 444 Madison Avenue between 49th and 50th streets, data from CoStar shows.

“I would say it is to be determined whether this is the start of a trend or a momentary pause,” Michael Roessle, research manager for Studley’s New York office, said.

Asking rents rose in Midtown by 20 cents per foot to $54.83 per foot, and the availability rate fell 0.3 points to 13.7 percent, down from a peak in June 2009 of 15.4 percent.

The volume of new leasing declined to 1.5 million square feet from 1.9 million square feet, but remained above the five-year average of 1.2 million square feet, CBRE data showed.

Midtown South

The Meatpacking District lease being considered by the financial tenant illustrates the halting nature of the recovery in the Manhattan office market.

The $77-per-square-foot price for the 6,525-square-foot sixth floor of 414 West 14th Street between Ninth Avenue and Washington Street is far below what the building’s owners — the Carlyle Group and Sitt Asset Management — expected to fetch for the space two years ago, sources said.

It also includes a 4,000-square-foot rooftop terrace.

Brad Gerla, a senior vice president at CBRE and a broker representing the building, said tenants looking for a more creative atmosphere tend to gravitate to the neighborhood. Also, many hedge-fund owners live in nearby Tribeca.

“You can provide a tenant with a first-class atmosphere and a first-class building in a market that traditionally was not an office market,” he said.

He declined to comment on specific tenants looking at the building, where CBRE took over the office leasing agency from PBS Real Estate in March.

Meanwhile, CoStar shows that the building has another lease out — though insiders caution that leases under review are not finalized and deals can fall apart — for the 9,129-square-foot, second-floor space.

Other buildings in the neighborhood attracting rents above or near $70 per square foot include 450 West 14th Street and 15 Little West 12th Street, brokers said.

Midtown South showed an overall strength in leasing in June, with an increase in asking rents, decline in availability and continued high level of new leasing activity, CBRE figures showed.

Asking rents in the submarket rose by 19 cents per foot to $41.89 per square foot in June, while the availability rate fell by 0.4 points to 13.7 percent. In addition, the strong level of new leasing topped 560,000 square feet in June, more than twice the monthly average of 270,000 square feet.

Downtown

In contrast to the rest of Manhattan, the Downtown market was broadly weak in June, showing continued declines in asking rents and increases in availability rates, the most recent CBRE figures showed. But low rents are luring tenants from Midtown. The Daily News and U.S. News and World Report inked a deal last month for 99,050 square feet at 4 New York Plaza.

The publications signed a lease for the sixth and seventh floors of the bunker-like, 23-story tower located at Water and Broad streets.

Jordan Slone, chairman and CEO of building owner Harbor Group International, declined to provide an exact price per foot paid for the sixteen-and-a-half-year deal. But he told The Real Deal it was above the $25 per foot reported in the press in June and below $31 per foot. That’s far below the $37.68-per-square-foot asking rent in the Financial District submarket.

Slone also said the free rent the building provided was in line with current industry standards, which are about 12 to 14 months for a deal of that length.

In January, Virginia-based Harbor Group and Downtown-based Capstone Equities paid JPMorgan Chase $107 million, or about $97 per square foot, for the 1.1 million-square-foot building. At the time of the sale, the bank signed a 15-year lease for 75 percent of the building.

“We bought the building at a very attractive price, when prices were down, and that allows us to be very competitive,” he said.

In addition, the New York Post reported in June that American Media, the publisher of titles such as the National Enquirer, may take 85,000 square feet there.

Slone would not comment on possible future deals, but said he expected to announce another lease deal next month.

The June leasing figures were all weak Downtown, with asking rents declining by 17 cents to $38.26 per square foot, and the availability rate rising to 15 percent from 13.4 percent.

At the same time, leasing volume in June was slow, with just 190,000 square feet of new space taken.

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