The Real Deal New York

Midtown South lifts overall market

Aided by tech leasing streak, the area is home to vast majority of Manhattan’s office absorption

June 01, 2012
By Adam Pincus

Midtown South has done the heavy lifting so far this year to bring down the availability rate in the Manhattan office market. Midtown and Downtown, on the other hand, have not performed as well.

In fact, Midtown South — which has gotten a lot of attention lately because of its popularity with technology and media firms — has represented 73 percent of the positive office space absorption in Manhattan through the first four months of the year, commercial data firm Cassidy Turley reported.

“Midtown South is in high demand,” said Richard Persichetti, vice president of research at Cassidy Turley.

Through April, the Midtown South market — which includes Chelsea, Flatiron, Soho, Hudson Square and Tribeca — saw 630,000 square feet of positive absorption. During the same period, there was just 860,000 square feet of positive absorption for Manhattan overall, Cassidy Turley data showed. (Midtown saw slightly positive absorption, while Downtown saw negative.)

Overall, the market was stable, even as some European economies stumbled. For Manhattan overall, the average asking rent rose to $54.04 per square foot, up $0.39 per foot, while the availability rate — which measures space available now or in the next 12 months — edged down slightly to 11.5 percent, down 0.1 points, preliminary data from commercial firm Colliers International showed.

“The market is holding up a little better than some of the scare stories that were out in the early part of the year [predicted],” said Peter Kozel, executive managing director and chief economist for the New York office of Colliers. “It’s not really a strong upward movement, but it’s fairly solid.”

Midtown

Some of the city’s largest tenants inked deals in Midtown last month, including Citigroup, which renewed 500,000 square feet at Boston Properties’ 601 Lexington Avenue. But even that deal did not match the 1.3 million-square-foot renewal and expansion that media giant Viacom locked in a month earlier in April at SL Green Realty’s 1515 Broadway in Times Square.

And commercial brokers said the disparity was not just at the top of the market. The overall Midtown market, they said, seemed a bit slower last month.

“There is not a sense of urgency [in Midtown] on behalf of the tenant community, and the landlords are not as bullish as they were at the end of 2011,” said Bruce Weinberg, executive managing director at Cassidy Turley. He said he expects an uptick later in the year.

Despite a slightly more downtrodden mood among brokers, the statistics showed an improving market.

The average asking rents for Midtown rose to $66.49 per foot, up $0.35 per foot, while the availability rate remained flat at 11.9 percent, Colliers figures showed.

Adding to that improvement was construction management company RC Dolner Construction, which signed a new office lease last month at 192 Lexington Avenue at the corner of 32nd Street, CoStar Group data shows. (Some of the city’s brokerage firms consider that Murray Hill location to be Midtown South, but CoStar considers it Midtown.)

The construction firm — which has worked on high-profile projects such as the Hyatt’s Andaz 5th Avenue and the Soho Grand Hotel — took 8,268 square feet on the third floor for 10 years, CoStar data showed. Weinberg represented the landlord at the property, a company called Cres, while Edmond Levy and Samantha Greene, of Cornerstone Real Estate Investments, represented the construction firm.

Midtown South

Internet firms have not let up on their leasing in Midtown South. Last month, Groupon competitor LivingSocial went from a sublease to a direct deal in the neighborhood.

LivingSocial leased the entire fifth floor at the 60,405-square-foot 101 Fifth Avenue, at the corner of 17th Street, in a three-year renewal deal. CoStar estimated the rent for the space to be $55 per square foot. LivingSocial was represented by CBRE Group brokers Brad Needleman, a senior vice president, and Adam Schultz, a senior associate. They both declined to comment.

Esther Zar, a managing director at Murray Hill Properties who is active in the Midtown South market, said despite the European banking troubles, local tech firms have continued to sign leases as they raise funds from venture capitalists.

“As I see it, Midtown has not risen in rents the way that Flatiron has,” she said, noting that below 23rd Street she has seen asking rents rise over the past six months from the high $30s and low $40s per foot to the mid-$50s and up.

“You are even seeing side-street buildings [in the Flatiron District] asking $50 per square foot, which is unbelievable,” she said.

Midtown South showed the greatest rise for the month in asking rents. They jumped by $0.81 per foot to $43.09 per square foot, as the availability rate declined slightly by 0.1 point to 8.2 percent, according to the Colliers data. The numbers indicate a market that’s much tighter than the markets in Midtown or Downtown.

Downtown

Media firms have been heading Downtown for more than a year now, with the most high-profile example being Condé Nast, which signed a deal to lease more than 1 million square feet at 1 World Trade Center last year.

But some media firms are leaving Midtown South because they are unable to find enough space in the more expensive Flatiron and Soho areas. Instead, they are heading south to lower Manhattan.

An entertainment development company called Half Yard Productions, which created popular reality cable shows such as “Say Yes to the Dress,” signed a 10-year deal last month to take 12,730 square feet on the ninth floor at 50 Broad Street, CoStar shows. Asking rents are $29 per foot to $30 per foot in the building.

The company said moving Downtown makes sense for its business model on two key fronts.

“Half Yard is expanding the company’s footprint in New York and wanted a space closer to our network partners,” said firm cofounder and executive producer Abby Greensfelder.

Cushman & Wakefield brokers James Searl, Bernhard Weinstabel and Courtney Adham represented the building, while Paul Bostick, a partner with Midtown-based tenant-representation firm Brentler, represented Half Yard.

Bostick declined to comment on the lease, but said there is a shift in Manhattan driven in part by the booming Midtown South. Indeed, he said, Downtown is benefitting because some tenants can’t find a home in Soho or the Flatiron District.

In Midtown South, “they found space that did not work for them or was too expensive, but they were able to find space that works for them in the Financial District,” he said.

The Downtown market was the only one to see a decline in asking rents, with average prices falling by $0.11 per foot to $44.85 per square foot. Yet the news was not all bad. The availability rate declined more than the other two districts, falling by 0.3 points to 15.8 percent, Colliers statistics showed.

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