Law firm Proskauer Rose signed a lease last month for more than 400,000 square feet at 11 Times Square, providing a major psychological boost to the Manhattan office market, but pricing remains flat overall and large blocks of space continue to come to market.
Also, while average asking rents have largely stabilized in recent months, leasing activity remains below historical averages.
David Hoffman, executive managing director with Cassidy Turley, said that even as many headline-grabbing leases lead some to believe the market has begun to improve, in many cases, the activity is just tenants trading up while they have the leverage. One example last month was Service Employees International Union Local 32BJ taking 245,000 square feet at 620 Sixth Avenue in Chelsea, a reduction in size from its current 400,000 square feet farther downtown at 101 Sixth Avenue in Hudson Square.
“To temper everybody’s enthusiasm, this is more about flights to quality than it is about turning a corner,” Hoffman said. “I see how landlords in Class A-plus buildings in terrific locations feel empowered to consider raising rents, but I can’t see it for the large majority of landlords for whom the leasing velocity is still relatively slow.”
The most recent figures for Manhattan in April backed that up. Average asking rents fell by 14 cents per foot in April to $48.13 per square foot, and new leasing activity in April was 1.6 million square feet, about 100,000 square feet less than the month before, figures from commercial services firm CB Richard Ellis showed.
Even as the Proskauer lease grabbed headlines, significant availabilities hit the market in Midtown last month. The Durst Organization listed more than 320,000 square feet previously occupied by pharmaceutical giant Pfizer on 13 full floors at the 530,000-square-foot office building at 205 East 42nd Street in the Grand Central submarket, data from the CoStar Group showed.
In addition, more than 37,000 square feet came on the market at 280 Park Avenue, between 48th and 49th streets in the Park Avenue district.
Alicia Popper, senior managing director at landlord and brokerage Savitt Partners, is trying to attract office tenants to 499 Seventh Avenue, at 37th Street, from the Grand Central area.
She is marketing to financial services, telecom and creative media firms she wants to bring to her building north of Penn Station, currently known for its showroom tenants, using the incentives of prebuilt space and $35-per-foot asking rents.
“We are asking $35 a foot, and it is attractive to people facing $45 [per foot] renewals in the Grand Central market,” she said.
In general, while landlords have not been pushing up asking rents, some have been shaving incentives.
“The free rent is not as abundant as the beginning of the year,” Popper said.
In Midtown, average asking rents were flat, falling just 2 cents per foot to $55.42 per square foot in April, while leasing activity was down as well, falling to just over 1 million square feet in April from 1.2 million square feet the month before, CBRE figures showed.
Several large blocks of space were returned to the market last month. For example, in Greenwich Village, research firm Nielsen placed on the market a full floor of more than 75,000 square feet of sublease space at 770 Broadway, Vornado Realty Trust’s 15-story office building between Eighth and Ninth streets, according to data from CoStar Group.
Such large spaces are an anomaly in Midtown South, a district favored by smaller tenants that runs to Canal Street. Marc Ellman, president of tenant and landlord representative firm Ellman Realty Advisors, said he currently has tenants with requirements of between 3,000 and 35,000 square feet.
“That is an unusual piece of space considering the size of it,” Ellman said. “It offers a user who wants to lay themselves out on one floor instead of multiple floors a unique opportunity in the Village.”
He said prices have continued to fall in recent months. A space he put on the market a few months ago at 333 Park Avenue South, between 24th and 25th streets, in the low $40s was recently leased at about $37.50 per foot.
“It was less than we thought we would get,” he said.
For the market overall, average asking rents fell by 11 cents per square foot in April to $41.49 per square foot, while there was 200,000 square feet of new space leased, down from 270,000 square feet the month before, CBRE reported.
One of the largest relocation deals struck this year Downtown highlights the lengths landlords and sublandlords will go to in order to rent up vacant space. A financial insurance firm seeking to vacate more than 52,000 square feet at 140 Broadway between Cedar and Liberty streets paid millions to a growing investment firm to take the remaining 10 years of its lease off its hands.
ACA Financial Guaranty, a bond insurance company, wanted to terminate the lease it signed at 140 Broadway in 2006 and move to a smaller location. So it struck a three-way deal between itself, the new tenant, Susquehanna International Group — a global investment firm based in suburban Philadelphia — and the landlord, German real estate firm Union Investment.
Susquehanna has a lease expiring in September for about 38,000 square feet at 40 Wall Street.
As part of the negotiations, concluded in late March, Susquehanna signed a new lease with the landlord for the 47th and 48th floors of 140 Broadway, instead of signing up as a subtenant of ACA Financial, Susquehanna’s broker Chris Helgesen, managing director at commercial services firm UGL Equis, said.
ACA Financial paid millions of dollars to Susquehanna, which represented the difference between the rent it signed for in December 2006 and the much lower rent Susquehanna would have paid. So instead of paying the landlord the new, lower rent, Susquehanna will pay the same face rent to the landlord as ACA Financial was paying, but with a subsidy to bring its actual cost to an approximate market rent, Helgesen said.
“The lump sum was the discounted future stream of payments which represented the difference between their existing lease and what we agreed to,” Helgesen said.
The actual amount paid was not released, but financial reports by ACA Financial from 2009 estimated it would lose $7 to $10 million in a sublease deal. The new rental terms were not disclosed, but asking rents in the building are about $46 per foot, information from CoStar shows.
Average asking rents Downtown fell by 23 cents in April from the month earlier, to $38.58 per square foot.But unlike Manhattan’s other office markets, new leasing activity actually increased in April, to 350,000 square feet from 260,000 square feet in March, CBRE reports showed.