Midtown and Midtown South — two of Manhattan’s three office submarkets — have been all over the map when it comes to price adjustments this year. One quarter more square footage is repriced upward, another quarter the net balance moves lower.
That’s not the case in Downtown, where dwindling lower-cost options have allowed landlords to push a balance of the submarket’s available space upward for three consecutive quarters, according to a third-quarter analysis by Colliers International.
“The only consistent pattern we’ve noticed year to date was Downtown, where upward repricing has taken place in existing blocks,” said Franklin Wallach, senior director of the research group at Colliers International . “It appeared in nearly every segment of the Downtown market.”
Landlords are constantly adjusting prices up or down to align with market conditions, which is just one factor when it comes to overall market pricing. And it should be noted that despite topsy-turvy price readjustments, overall asking rents are up year-to-date in all three of Manhattan’s office submarkets.
But unlike Midtown and Midtown South, the Downtown market has consistently trended upward on re-pricing, defined as a listed asking rent on existing space that changes in price during the quarter.
“Year-to-date 2016, by roughly a two-to-one ratio, more available inventory Downtown was priced higher than where pricing was lowered,” Colliers’ executive director Craig Caggiano said. “That is, 3.4 percent of available inventory was re-priced lower but 6.4 percent was re-priced higher.”
Half of the space that increased asking rents was above Downtown’s average, which stood at $58.83 for the third quarter. (By contrast, most of the space repriced downward in Midtown remained above the average asking rent.) On balance – the difference between spaces that were priced downward and those priced upward – Downtown landlords increased asking rent by an average of $4.64 per square foot.
Buildings like Norman Bobrow & Co.’s 975,000-square-foot 1 State Street and L&L Holding’s 1 million-square-foot 195 Broadway, both of which CoStar Group shows have more than 230,000 square feet of available space, have pushed pricing upward.
Contributing to the trend is the fact that lower-cost options are becoming rare sightings in Downtown.
Sublet space, which generally puts downward pressure on market asking rents, is nearly non existent at 1.3 percent – the tightest availability in Manhattan.
And after years of developers converting older, Class C buildings into non-office use, low-cost spaces are exerting less downward pressure on pricing in the area’s Class A and B buildings. Class C inventory now makes up just 2.7 percent of the submarket.
“There’s no question about the bottom-up leasing Downtown,” said Cushman & Wakefield’s Tara Stacom, who is leading the leasing effort at Clarion Partners and MHP Real Estate Services’ 180 Maiden Lane. “The magnitude of deals in [Class] B and C buildings has always been higher than the [A buildings]. The cheaper space has been renting over the last several years.”
Downtown, Stacom added, is the only Manhattan submarket that’s seen vacancy fall year-over-year.
“Some spaces that might not front the water might not push the pricing,” she said. “Generally, leasing has gone very well on most of the spaces.”