The Real Deal New York

Manhattan office rents showed steady improvement last year

By Guelda Voien | January 18, 2012 04:45PM

Manhattan office leasing finished 2011 with gradual but steady improvement in asking rents, according to data released today by CBRE.

The exception is Midtown South, where the “glow of Google,” as Mary Ann Tighe, CEO of the tri-state region for CBRE, called it, pushed 2011 absorption to 2.19 million square feet — the highest for that market since 1997. In Midtown South, the overall availability rate fell to 8.8 percent in December, down slightly from November, the largest monthly drop since 2005, according to the figures presented by CBRE at its fourth-quarter media breakfast this morning. Tenants once flocked to Midtown South when they were priced out of Midtown, Tighe said, but 2011 saw a reversal of that trend. Average asking rent in the Midtown South market was $45.34 per square foot, up $0.68 in the fourth quarter.

The Midtown market saw 16.77 million square feet of leasing activity last year, the most since 2006. The average Midtown asking rent rose $1.86 per square foot to $62.43 in the fourth quarter, up from $60.57 in the third.

Downtown, rents saw “no meaningful uptick,” in the fourth quarter, Tighe said. The average asking rent Downton rose to $39.30 per square foot during the fourth quarter, up a net $0.33 quarter-over-quarter from $38.97 per square foot. In the fourth quarter of 2010 average asking rent in Lower Manhattan was $38.00 per square foot. Of large blocks of space still available downtown, Tighe pointed to One New York Plaza, where Morgan Stanley is still in negotiations for the renewal of their one million-square-foot space.

In Manhattan overall, asking and taking rents have not significantly narrowed, brokers said. These numbers were not as rosy as those presented by Cushman & Wakefield last week.

Generally, tenants appear to have shown a conservatism that both boosts and depresses the leasing market. Many firms are holding onto sublease space, said Tighe, because they are not sure if their business will grow soon. But firms are also less likely to move to new buildings, and are often renewing leases in their current space. Renewals made up 27 percent of Manhattan’s total leasing activity in 2011, according to CBRE.

While demand from the financial services sector — the bread and butter of Manhattan leasing — has fallen three percent from 2005 to 2011, demand from law firms and media both grew two percent, and demand from technology companies grew one percent.

“Fortunately,” Tighe said, “there are growing alternatives,” to the financial services sector.

Technology tenants, though numerous, were often looking for small blocks of space and sought to sign short-term leases last year, Tighe said.

Gregory Tosko, vice chairman at CBRE, said he believes “the financial services sector has stabilized,” but that foreign banks continue to leave the investment banking sector. Though American firms will expand into the space, he said, the transition is taking time.

Tighe said changes in the Downtown market bode well for its office space. As the increasingly residential and family-oriented area gets more retail stores, she projects a healthier office leasing climate. And, by 2015, CBRE figures show Downtown having a much larger percentage of post-1980 construction office stock than Midtown (34 percent, versus Midtown’s 13 percent).

In the next 24 months, Tighe said, the changes in Lower Manhattan will lead to a spike in interest levels. Once that happens “we won’t have to keep explaining Downtown,” she said.