The Plaza submarket — which JLL defines as 47th to 65th streets between Sixth Avenue and the East River — is the city’s most expensive, and accounts for nearly a quarter of Manhattan’s office inventory. But it saw only 12 percent of the city’s largest deals in the first quarter of 2013 (through late March), JLL’s data showed. And the median deal size there was a paltry 9,902 square feet.
The Real Deal and others have reported since last year on large companies’ reluctance to ink big leases in Manhattan. But this research reveals a new twist to the old story: When firms do sign big deals, they seem to be avoiding the high-rent Plaza District.
The smaller (and cheaper) Grand Central submarket, with only 16 percent of the city’s office inventory, saw 28 percent of Manhattan’s 25 largest deals, the study found. For example, the financial research company Value Line in February leased some 44,000 square feet at 485 Lexington Avenue in the Grand Central submarket, according to CoStar, while the fragrance maker Inter Parfums signed a deal for 42,740 square feet at 551 Fifth Avenue.
Smaller companies, however, do seem interested in the Plaza area. For example, in February, the fine-diamond company Andiamond leased 5,063 square feet at 590 Fifth Avenue, CoStar showed. As a result of this phenomenon, “the Plaza district is becoming an enclave for smaller firms,” said Bill Peters, an executive vice president at JLL.
Plaza district landlords may be responding to tenants’ desire for more affordable space, however. The average asking rent for Class A office space in the submarket was $85 a foot last month, down $4.28 a foot from the end of last year, according to commercial firm DTZ.
The overall asking rent in Manhattan was $59.80 per square foot, down from $60.62 in December. The availability rate — which measures the amount of space up for grabs in existing buildings — inched upward to 11.9 percent during the same period, according to preliminary data from DTZ.
With the Plaza District having trouble attracting large tenants, a new tower farther south is hoping to pick up the slack.
A joint venture of Hines and Pacolet Milliken Enterprises is constructing a 28-story building called 7 Bryant Park that is expected to be completed in 2015. The 474,000-square-foot building is located on Sixth Avenue between 39th and 40th streets.
A CBRE Group team of Mary Ann Tighe, Howard Fiddle, Evan Haskell and Ben Friedland is leasing out the building, which has asking rents of $100 to $200 per square foot.
Those prices are far above last month’s $68.27-per-foot average asking rent for Midtown, which in turn dropped from $69.88 in December, DTZ figures showed. At the same time, Midtown’s availability rate rose to 12.2 percent from 11.9 percent.
The leasing team at 7 Bryant Park expects most tenants in the building to take 100,000 to 250,000 square feet of space, and said it’s targeting firms that typically turn to the Plaza District for office space.
“We think the building is ideally suited for financial service firms, hedge funds, private equity firms, consulting firms, tech companies and law firms,” the team said in a statement.
But 7 Bryant Park has competition for large tenants from other new-construction Manhattan buildings, including the Moinian Group’s 3 Hudson Yards, Related Companies’ Coach Building, Extell Development’s 1 Hudson Yards, Brookfield Office Properties’ Manhattan West and One World Trade Center.
Technology firms continue to flock to the popular Midtown South market. But while landlords boast about having tech firms in their buildings, brokers said some newer companies are finding it hard to compete for space with more established companies.
One rapidly growing information analysis firm, Datadog, inked a deal last month for 6,500 square feet at 286 Fifth Avenue. Launched in 2009, Datadog will relocate from 1140 Broadway, according to the firm’s broker, Daniel Schwartz of Winslow & Company.
Schwartz said Datadog found several suitable locations during its three-month search, but lost out to older firms that had better credit because they had been around longer.
“Landlords see they have many options for tenants, and it seemed they go for the more mature entities,” Schwartz said.
The landlord at 286 Fifth Avenue, Ab & Sons Group, was represented in-house by managing director Omid Pouratian, who declined to comment on the deal. CoStar Group’s database shows that the asking rent for Datadog’s space was $42 per foot, but a source said the company is paying just under $40 per foot.
The average asking rent in Midtown South was $49.77 per square foot last month, a slight increase from $49.44 in the fourth quarter, according to DTZ. The availability rate, meanwhile, grew to 9.4 percent from 9 percent.
This fall, Merrill Lynch & Company will give up 3 million square feet of space it has occupied since 1984 at Lower Manhattan’s Brookfield Place, a move that has many Downtown brokers buzzing.
And a nearby space with a similar history hit the market last month. Also, in 1984, Prudential-Bache Securities signed a deal for 340,000 square feet at 199 Water Street, a 1.1 million-square-foot tower built by Jack Resnick & Sons. Following several mergers, Prudential-Bache is now part of lender Wells Fargo, and has subleased its space at 199 Water to firms including BGC Partners and Allied World Assurance.
But that lease is set to expire in December of 2014, and last month Resnick hired Cushman & Wakefield’s John Cefaly, Robert Constable and Andrew Peretz to market the space.
Like many other buildings on the East River waterfront, 199 Water was damaged by Hurricane Sandy, but reopened after five weeks. To mitigate any future damage, all critical equipment is being relocated from the basement to higher floors, the company said.
There was no asking rent included in the listing for the space, but brokers said they expect it to rent in the low $40s per foot.
Brett Greenberg, a managing director with Resnick, said the recent growth in the Downtown market should help lure tenants to 199 Water.
Lower Manhattan is “dynamic, multidimensional, with tenants from all three major sub-markets relocating there and continued interest from the creative industry,” he said.
Average asking rents Downtown rose to $41.75 per foot over the last quarter from $41.45 at the end of 2012, according to DTZ. The availability rate rose 0.1 points to 13.1 percent during the same period.
CORRECTION: An earlier version of this story incorrectly said 7 Bryant Park was between 40th and 41st streets. It is between 39th and 40th streets.