Despite the large lease extension signed by Macy’s in Midtown’s Penn Plaza district, prices and availability in the Manhattan office market remained stagnant last month. And insiders predict that conditions will remain flat for the next few months.
“The general thinking in the brokerage community is that the first half of the year will be flat, with a pickup and growth in the latter half of the year on an accelerated basis into 2014,” said David Greenbaum, president of the New York City Office Division of Vornado Realty Trust, during the firm’s fourth-quarter earnings call last month.
Indeed, Manhattan’s average asking rents barely budged last month — falling 9 cents to $60.96 per square foot from January. The availability rate — which tracks space that’s vacant now or will be in the next year — ticked up 0.1 points to 11.8 percent, according to figures from global commercial firm DTZ.
“Leasing is slow and steady,” said Chris Helgesen, a managing director in the New York office of DTZ.
The largest reported office deal last month in CoStar Group’s database was the 646,000-square-foot lease extension between Macy’s and Vornado at 11 Penn Plaza.
Meanwhile, in another Vornado building — the 2 million-square-foot 1290 Sixth Avenue — insurance firm AXA Equitable listed five floors on the Midtown sublease market, CoStar showed.
AXA, which is being represented by Jones Lang LaSalle, did not disclose an asking rent. But Greenbaum said the company’s lease, which was originally struck in 2007 and runs through 2023, has a higher rent than Midtown’s current average. In July, as part of the lease deal, AXA’s rent jumped from about $45 per square foot to $88, he said.
By comparison, the average asking rent in Midtown last month was $70.94 per square foot, down 26 cents per square foot from January, according to DTZ. The availability rate rose last month by 0.2 points to 12 percent.
The stalled leasing market is causing alarm among tenants and brokers trying to figure out their next moves.
Helgesen said he’s representing a law firm that has about 80,000 square feet in the Plaza District with four years left on its below-market, $60-per-square-foot lease. The firm is trying to decide whether to renew — and hedge against possible future rent spikes in the Plaza District — or ultimately move.
“My recommendation is to wait,” he said. “It may go to $90 [in the Plaza District], but you always have the release valve to move to another section of Midtown that won’t be as heated.”
The Hudson Yards area of Midtown South is shaping up to be something of an office-leasing battleground, with the Moinian Group, Extell Development, the Related Companies and Brookfield Office Properties hunting for office tenants.
Megabuildings in the area include Moinian’s proposed 1.8 milllion-square-foot 3 Hudson Boulevard; Related’s under-construction, 1.7 million-square-foot Coach building at 10th Avenue and 30th Street; and Brookfield’s planned Manhattan West, which could bring 5.4 million square feet of office and residential space to Ninth Avenue. Extell has also proposed a 1.7 million-square-foot tower in the area dubbed 1 Hudson Yards.
Moinian might develop the foundation at 3 Hudson, but he is unlikely to start construction on the project without a tenant committed to at least 400,000 square feet, according to the building’s broker, Avison Young’s Arthur Mirante.
Mirante said the asking rent is $85 per square foot in the building. That’s far above the average asking rent in Midtown South overall, but newly constructed Class A office towers typically charge higher rents than existing buildings do.
In fact, the average rent for Midtown South was $49 per square foot last month, up 3 cents from the prior month. The availability rate rose by 0.1 point, although 3 Hudson did not affect either rate because DTZ excludes buildings that are not yet complete.
Mirante said Avison Young is reaching out to tenants such as Time Warner, News Corp., CBS and advertising-media company GroupM.
But while rival developers are also reportedly reaching out to some of those companies, Mirante said he doesn’t view the competition as a zero-sum game.
Instead, he said, the buildings are together creating something of a new submarket, which will help attract more and more tenants.
“[It] removes the ‘I don’t want to be first’ frontier aspect of Hudson Yards,” Mirante said.
The average asking rent Downtown rose last month by 15 cents per square foot to $41.60, DTZ figures showed. The availability rate was flat at 13 percent.
During an earnings call last month, Brookfield CEO Dennis Friedrich said tenants have signed letters of intent (indicating a late stage in the lease negotiation process) to take some 1.5 million square feet in the company’s Brookfield Place (formerly World Financial Center), where Bank of America’s lease ends in October.
Meanwhile, landlords like SL Green Realty are laying out cash to lure Midtown South tech firms. “We’re designing our capital program to appeal to the Midtown South and sort of the traditional Midtown tenants, particularly some of the more creative media and tech-type tenants,” Steven Durels, SL Green’s director of leasing, said during the company’s most recent earnings call in late January.