“Rental rates have come down, and once again New York City is affordable for commercial tenants,” said Glenn Markman, executive vice president at Cushman & Wakefield. “A tenant who is in a position to sign a lease will look back five years from today and realize that they ‘hit the market at the right time.'”
He continued: “Today, even the small user of space has the ability to secure favorable terms and conditions. Larger users have the opportunity to win the ‘Mega Bucks Lottery.’ These tenants can reap [the] benefits of low rent, long concession periods and enormous amounts of money for leasehold improvements, which have not been available for perhaps 20 to 25 years.”
A recently released CB Richard Ellis July market view report noted that asking rents fell around $1 to $59.40 per square foot in Manhattan’s business districts. Landlords continued to reprice space already on the market, slashing asking rents on 178 units, totaling 2.05 million square feet, by an average of 16 percent last month. Since September 2008, 21.88 million square feet of space has seen prices slashed, by an average of 15 percent.
The average asking rents dropped in all business districts during July, and all Midtown submarkets reported averages below $70 per square foot for the first time since October 2003.
The year-to-date leasing activity in Midtown totaled 5.59 million square feet, trailing 2008’s office lease activity of 8.14 million square feet by 31 percent.
I recently learned that a financial institution, who requested anonymity, is in final negotiations with its landlord for a lease in the Garment Center. In the initial discussions, which took place earlier in the year, the landlord was seeking a base rent in the range of $45 per square foot. In the final negotiations, the tenant is expected to close on a lease for a 15-year term at a rent of $29 per square foot. The tenant will be receiving concessions of a nine-month rent abatement and tenant improvement funds of $1.5 million.
In Midtown South, the average asking rent continued to fall in July, dropping $1.30 to $43.49 per square foot as landlords continued to lower price for space already on the market. Since the beginning of the year, prices on 515 units — a total of 5.98 million square feet — were lowered by an overall average of 13 percent. A significant amount of repricing occurred in Union Square and NoHo/SoHo, where average asking rents fell $3.56 to $42.66 per square foot and $3.28 to $43.73 per square foot, respectively.
Some concessions increased, while others decreased. Rent abatement went up in July to 4 and a half months, up from June. But T.I. allowance dropped significantly from June, to an average of $24.
Downtown’s average asking rent continued to fall, dropping $0.72 to $41.19 per square foot, as landlords lowered prices for space already on the market. Since the beginning of the year, asking rents on 447 units, which add up to a total of 6.48 million square feet, have been lowered by an average of 10 percent. Average asking rents in the World Financial Center plummeted most significantly in July, falling $3.59 to $42.32 per square foot.
In the Downtown submarket, concessions included larger tenant improvement allowances than in Midtown South, at an average of $54. Downtown leases also included an average of 8 and a half months of rent abatement, an increase from June.
In conclusion, I concur with Cushman’s Markman when he says, “Today, tenants are the kings and in the driver’s seat.” If you are driving the car and need office space, there is no better time than to enter into a long-term lease for an office in Manhattan.Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.