The Real Deal New York

What slump? Office leasing rates in Midtown shoot up

Meanwhile, vacancies tumble
By Julie Strickland | March 06, 2014 12:01AM

Office leasing in Midtown rebounded in February, as employment growth, which surpassed the 2007 pre-recession peak, drove demand and pushed up asking rents, according to commercial brokerage Cassidy Turley.

Overall, Manhattan office rents hit an average asking rent of $67.04 per square foot last month – a 9.3 percent year-over-year increase, according to the firm’s February Manhattan Office Market Report. Meanwhile, vacancy rates fell slightly, to 10.7 percent from 11.8 percent.

Midtown South experienced the biggest year-over-year uptick in asking rents, with a 7.4 percent jump last month to $72.23. The neighborhood’s vacancy rate dropped to 7.7 percent year-over-year and held nearly steady from January, thanks largely to a 55,984-square-foot space at 275 Seventh Avenue hitting the market.

Midtown, which saw a drop in January, rebounded last month as tenants turned away from the competition for space in Midtown South. Vacancies in Midtown dropped to 11 percent, down from 12 percent last February. Midtown asking rents, meanwhile, crept up 4 percent year-over-year, with Class A office space going for an average of $81.63 per square foot.

“You can find space in Midtown that is cheaper than space in Midtown South, but in similar types of buildings,” said Peter Hennessy, president of Cassidy Turley’s New York Tri-State region. “So I think part of it is that when one market starts to get hotter, like Midtown South, people say ‘I’m not willing to compete with other tenants for space or pay a premium when I could get equal or better and still be in a position to compete.’”

Office leasing Downtown continued at a steady clip as well, with more than 1 million feet of positive absorption reported as Teach for America inked a 170,000-square-foot lease at 25 Broadway and Revlon snapped up 90,000 square feet at 1 New York Plaza. Class A asking rents in the Downtown market jumped 5 percent year-over-year to $55.28 per square foot on average.

“Clearly there are some nice signs in terms of where the market is going first two months of the year,” Hennessy said. “Not that we’re seeing this huge robust pop in the marketplace, but we are seeing positive indicators, such as the employment rate and consequential vacancy decline. If you look at total jobs that are office-using today, about 1.26 million, we’re past where we were in the pre-recession peak in 2007.”