Stodgy firms are hot again
in 2014

Law and financial firms rise back to the top of the list for big Midtown leases

Dec.December 01, 2014 12:00 AM

Manhattan office stats
Availability rateAverage asking rent
Manhattan
Nov-1410.1%$66.25
Oct-1410.2%$66.22
Midtown
Nov-1410.6%$74.96
Oct-1410.7%$75.73
Midtown South
Nov-148.0%$59.51
Oct-148.2%$58.54
Downtown
Nov-1412.1%$52.00
Oct-1412.3%$51.91
Source: Colliers International

Midtown’s old stand-by finance and legal tenants are back on top after being displaced last year by the “hotter” firms in the technology, advertising, media and information sector.

Seven of the top 10 leases in Manhattan’s largest office market so far this year were inked by financial services and legal firms. That compares with 2013, when those traditional types of tenants accounted for just three of the top 10 deals, research from commercial brokerage JLL showed last month. 

In addition, the TAMI sector, which accounted for three of the largest Midtown deals last year, represented only one so far this year.

However, TAMI tenants continue to grow their share in Manhattan leasing among smaller deals, the JLL survey found.

Much of the increase in large deals by law firms and financial firms was driven by relocations. For example White & Case, the international law firm with upwards of 400 attorneys in New York alone, signed a lease in April to take more than 440,000 square feet at 1221 Sixth Avenue, data from CoStar Group shows. The firm will be relocating from 1155 Sixth Avenue.

Insiders said relocations have become relatively more affordable with the sharp rise in construction costs.

That’s because when a company compares the cost of renovating its often inefficient old space to that of moving to a new building, the relocation is a better option.

“We look at the two capital pieces and there is not much difference,” said John Ryan, a principal with Avison Young. He was not involved in the White & Case deal, but said many tenants are looking at costs in a similar way.

Leasing volume in Manhattan overall bounced back from a slow October, but remained below November one year ago. Tenants inked 2.4 million square feet of leases last month, up from 1.8 million in October, but down from 3.4 million in November 2013, data from Colliers International showed.

Last month, the average asking rent for Manhattan rose by 3 cents to $66.25 per square foot, while the availability rate, which measures space vacant or that will become available in the next 12 months, tightened by 0.1 point to 10.1 percent, the Colliers data revealed. 

Midtown

A growing catalog and online shopping firm is expected to move out of its multi-floor offices at 463 Seventh Avenue in the Penn Plaza submarket, leaving a large block of space available for occupancy late next year.

The company, the OSP Group, focuses on plus-sized women’s fashions, and will likely vacate its space on floors 15 through 21 in the fall of 2015. The company will leave behind just over 120,000 square feet. The firm did not immediately respond to a message asking to confirm the move or if it located a new space.

The block of space at 463 Seventh Avenue, a 22-story building located on the corner of 35th Street, will likely be leased to two or three tenants, said David Levy, a principal with Adams & Company Real Estate, which manages the building.

“The market is extremely strong [as far as] the velocity of offers, proposals and lease signings,” Levy said, in part because amenities have expanded in the neighborhood such as restaurants and rooftop bars.

“We are getting a lot of overflow from those looking for buildings that are cool and interesting, but at a much lower price.”

The asking rent for the Seventh Avenue space in the low $40s was far below the asking rent for Midtown, which was $74.96 per square foot, Colliers research showed. That was down 77 cents per foot from October. At the same time, the availability rate declined by 0.1 points to 10.6 percent.

Midtown South

A Midtown South-based tech startup signed a lease for 5,162 square feet on the second floor of SL Green Realty’s 304 Park Avenue South, a 215,000-square-foot building at 23rd Street.

The two-year-old firm, Kinnek, runs an online B2B marketplace that helps small businesses find suppliers and manage purchasing, and announced in September it received $10 million in series A funding from investors. It relocated from 261 Madison Avenue, at the corner of 39th Street.

“We moved here from Midtown, and we’re glad to be in the heart of New York’s ‘Silicon Alley’ tech scene now,” company CEO Karthik Sridharan told The Real Deal. “Our new space gives us the flexibility to handle the breakneck growth we’re experiencing.”

The average asking rent in Midtown South rose sharply last month to $59.51 per square foot, from $58.54 per foot, the Colliers information showed. Meanwhile, the availability rate declined by 0.2 points from 8.2 percent in October to 8 percent last month.

Downtown

A large lower level space is being reintroduced to the market across the street from 1 World Trade Center.

Cushman & Wakefield’s David Tricarico is marketing concourse space at 140 West Street, between Barclay and Vesey streets. The three levels of space below grade are likely to go retail or lease to a school or medical use, Tricarico said. But he was entertaining office uses as well. Part of the approximately 82,000 square feet on three lower levels had been a call center in the past.

The recent interest “has primarily been schools and medical, with some production people calling,” Tricarico said. “Back office, not yet. But I am assuming we will get some of those calls because of the location.”

In addition, on the east side of Lower Manhattan, Hugo Boss signed a lease last month to relocate from Chelsea, making it the first “high fashion” brand to take space in the city’s least expensive market. Other apparel firms are moving to the west side, like Saks Fifth Avenue owner Hudson’s Bay, which announced in September a deal to take 400,000 square feet of office space in Brookfield Place.

While brokers had long said that high fashion tenants would make the move, this was the first large one relocate to the area, insiders said.

Brokers said the move was likely tied to the Condé Nast move to 1 World Trade Center, because fashion needs both buyers and media to survive.

One broker, who has placed fashion tenants in Chelsea, Tribeca and the Meatpacking District, said she would now throw Lower Manhattan in the mix. Previously she did not consider it.

“But now it is an option. If someone has a showroom [requirement] and is price sensitive, I would not have done it before, but now I would definitely consider it,” said Lisa Rosenthal, managing director with the brokerage Lansco.

Hugo Boss is relocating from the Starrett-Lehigh Building at 601 West 26th Street to 55 Water Street.

The firm will take 73,690 square feet at the 3.9 million square foot 55 Water Street, according to a statement from the brokerage CBRE, which represented the landlord. The tenant was represented by Greg Taubin of Savills Studley.

CoStar estimated the Hugo Boss starting rent at $54 per foot.

That is slightly above the average asking rent for Downtown last month, which rose by 9 cents last month, $52 per foot, from $51.91 per foot in October, while the availability rate fell from 12.3 percent to 12.1 percent during the same time period, the Colliers data revealed.


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