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Office rent spreads jump as high end runs away
Midtown’s gap between top-tier leases and average asking rents far higher than in 2007
| Manhattan office stats | ||
| AVAILABILITY RATE | AVERAGE ASKING RENT | |
| Manhattan | ||
| Oct-14 | 10.2% | $66.22 |
| Sep-14 | 10.2% | $65.97 |
| Midtown | ||
| Oct-14 | 10.7% | $75.73 |
| Sep-14 | 10.6% | $75.74 |
| Midtown South | ||
| Oct-14 | 8.2% | $58.54 |
| Sep-14 | 8.5% | $58.19 |
| Downtown | ||
| Oct-14 | 12.3% | $51.91 |
| Sep-14 | 12.2% | $51.70 |
| Source: Colliers International | ||
The taking rents — the actual rents paid at the start of the lease — for the very top deals are at an all-time high in Midtown and Midtown South, and are approaching former highs in Lower Manhattan.
What’s more, the spread between those top deals and average asking rents has increased since the prior peak of the market about seven years ago.
In Midtown, the city’s premier office market, the average taking rent of the top 20 leases inked with landlords in the third quarter was $158.29 per square foot, Newmark figures revealed.
That is more than twice the average asking rent for the market.
At the previous peak of the market in 2007, the average of those top-tier deals was only about 60 percent above the Midtown average asking rent.
“Taking rents are increasing as the high end of the market improves, drawing the overall averages upward,” said Stephanie Jennings, director of tri-state research for Newmark. She noted that the summits were being reached typically in the newest, Class A office buildings.
But in older buildings in some areas, Jennings said, rents have stalled. “Grand Central and the East Side, those are flat year-over-year. Grand Central [for example] tends to be a value play,” she said.
Although the difference between the top-tier deals and the average asking rent was less striking in Midtown South, it was significant. There, the top-tier taking rent was $86.13 per foot last quarter, about 50 percent higher than the average rent. And in Lower Manhattan, the top-tier figure was $58.77 per foot, or about 15 percent higher.
Even as pricey deals get signed, there are additional indications of caution in the wider market. Last month, there was a slight tick downward in leasing activity, though it followed a strong third quarter.
The total volume of leasing in Manhattan declined last month from September, and also from the same time a year ago, to 1.8 million square feet, preliminary information from commercial firm Colliers International shows.
That is down from the 2.3 million square feet leased in October 2013, and the 2 million square feet taken last month, Colliers research shows.
Yet Manhattan’s average asking rent in October was up by 25 cents from September, at $66.22 per square foot, Colliers data showed. The availability rate was flat for the month at 10.2 percent, after falling for several months in a row. The availability rate tracks space that is vacant now or will be available in approximately the next 12 months.
Midtown
After 20 years at 711 Third Avenue, the 73-year-old weekly insert Parade magazine is relocating operations to Nashville, following its purchase by Athlon Media from the Condé Nast division Advance Publications.
The move opens up just under 80,000 square feet on a floor-and-a-half of sublet space at SL Green Realty’s 560,000-square-foot office tower located between 44th and 45th streets. The lease runs until 2020.
Leasing agents Peter Gross, Louis Puopolo and Alexander Furst from Douglas Elliman Commercial listed the space on CoStar, although without an asking rent. Athlon and the brokers did not respond to a request for comment.
The average asking rent in Midtown was down slightly last month by 1 cent, to $75.73 per foot compared to $75.74 per foot in September, the Colliers figures showed. The availability rate in Midtown rose by 0.1 point, to 10.7 percent, during the same time.
“The availability rate is up slightly in Midtown due to large new availabilities along the Third Avenue and Park Avenue corridors,” said Joseph Harbert, president of the eastern region of Colliers.
Midtown South
The investigative journalism publisher ProPublica inked a 10-year deal in Trinity Real Estate’s 155 Sixth Avenue, paying about $60 per square foot, information from leasing database CompStak showed.
The nonprofit news service signed a deal in September for 14,709 square feet, taking the entire 13th floor of the 226,376-square-foot building located between Spring and Dominick streets, data from CoStar Group shows.
An agent for the landlord did not immediately respond to a request for comment.
“I can indeed confirm that we have a deal for that location,” a spokesperson for ProPublica said in an email, but did not elaborate beyond identifying CBRE’s Gerry Miovski, based in the firm’s Downtown office, as the publisher’s broker in the deal.
ProPublica is currently located on the 23rd floor of the 358,637-square-foot office building at 55 Broadway in Lower Manhattan.
ProPublica’s rent was slightly higher than the average asking rent for Midtown South last month, which rose to $58.54 per foot. That was up 35 cents from September, Colliers figures showed.
Although higher, that is far below the market’s high-end taking rent, which rose dramatically over the past year to $86.13 per square foot from $70.79 per square foot in October 2013, the Newmark figures revealed.
“We’re seeing rents in Midtown South in the $80s and $90s [per square foot], and some over $100 per square foot,” Jennings said. She added that $100 per foot “is about double what the high end of that market was getting about 10 years ago.”
In October, the availability rate in Midtown South tightened by 0.3 points to 8.2 percent, compared to September, the Colliers data revealed.
Downtown
The bold headlines trumpeting a resurgence of Downtown tend to focus on leasing west of Broadway, but an agent for an older building east of the famous street hopes to change that.
A team of Newmark brokers including Vice Chairman Brian Waterman last month began marketing two large blocks of space with a total of nearly 300,000 square feet in 1 State Street, a 975,000-square-foot building between Water and Pearl streets.
The 35-story building, built in 1969, is home to tenants including the New York State Banking Department.
Newmark listed floors 15 through 18 with a total of 106,320 square feet, and 28 through 35 with 188,213 square feet. The smaller space, which CoStar shows is being vacated by Ambac Financial Group, will be available in January 2016.
The larger block is leased to financial ratings firm Fitch, which is consolidating space at 33 Whitehall Street, and will be available in January 2015. Waterman declined to comment on what tenants were in the building.
The asking rent for the lower block was in the “mid-$50s” and the upper block a few dollars more, Waterman said.
Landlord Acta Realty is refurbishing the building, including the lobby and elevators, Waterman said. Despite being older than the more modern towers of the World Trade Center or Brookfield Place, Waterman said it is a Class A tower with large floor plates and sweeping harbor views.
“We are not that $75 [per square foot] building,” Waterman said, referring to the more expensive recent construction towers to the west. “Ownership is looking to make deals where the market is.”
The average asking rent Downtown rose by 21 cents per foot last month to $51.91 per foot, while the availability rate ticked up slightly, rising to 12.3 percent from 12.2 percent in September, figures from Colliers said.
Downtown is the one market where the high-end taking rents have not surpassed their previous highs, the Newmark data revealed. Although generally on the rise since 2010, the average taking rent for top-tier transactions was $58.77 per foot, below the market’s peak in 2007, when it hit $61.30 per foot.