Flight to quality drove gains in Manhattan office market

The Manhattan office market’s gains in the wake of the pandemic appear to be centered on a continued flight to quality.

CBRE data show 105 contracts were signed for spaces priced at or above $100 per square foot, as reported by the Commercial Observer. The contract signings marked a 114 percent year-over-year jump and an 18 percent rise from a five-year average.

Spaces priced below the triple digits are also exceeding pre-pandemic numbers, but aren’t coming back as quickly as the higher-priced offices, the Observer noted.

The popularity of the steep prices may be slightly misleading, however, as many landlords are still offering various concessions to lure tenants back into offices.

“When you look at the calculation of what it’s going to cost them out of pocket, you add in the concessions, you see that even in the market for $100 deals, the net effective rent is still low,” Nicole LaRusso, CBRE’s tri-state director of research and analysis, told the Observer.

Tenants enticed by new developments and renovations drove the flight to quality before the onset of the pandemic, but state-of-the-art HVAC systems and other amenities are a crucial part of office landlords’ plans to draw workers back.

The volume of space priced at $100 or more increased 250 percent since 2016, the Observer reported. There was 11.1 million square feet in the market at the end of 2021.

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Tenants from the financial sector led the way in $100-per-square-foot leases, accounting for 45 percent of the deals in the price range. Media and entertainment tenants also played a major role, accounting for 18 percent of the transactions.

Even higher quality office spaces are moving at greater levels too. CBRE reported that 2021 saw the most $150-per-square-foot deals since 2016 and the most $200-per-square-foot deals ever recorded.

Several of the largest office leases in Manhattan last year by lifetime value had asking rents in the triple digits. The largest lease, courtesy of MSG Entertainment at 2 Penn Plaza, saw asking rents in the low $100s per square foot. Venable LLP’s lease at 151 West 42nd Street was in the same range. CLEAR’s lease at 85 10th Avenue was also asking in the low $100s.

Among the ten largest lease deals of the year, the highest price per square foot belonged to Stoneridge Asset Management, paying in the low $220s per square foot at the amenity-rich One Vanderbilt. It will pay $311 million over the life of the lease.

[CO] — Holden Walter-Warner