Office-leasing brokers have been blaming Midtown’s lackluster activity on Sixth Avenue for some time. Yet it’s now becoming clear that the percentage of available space on several neighboring avenues is higher than it is on Sixth — and it’s rising.
At the start of last month, the percent of available Class A office space along Sixth Avenue hit 12 percent. But the availability rate — which measures the amount of office space that’s available or will become available over the next 12 months — was even higher along Madison, Third and Fifth avenues. And Lexington Avenue had the highest rate at a shocking 26.6 percent, according to commercial firm Colliers International. That’s compared to 13.5 percent for overall Class A office space in Midtown.
“The industries in Midtown just aren’t growing,” said Peter Kozel, chief New York economist at Colliers. “It’s not a disaster — just a combination of slower growth and a push [by companies] to slim down.”
The lack of growth in Midtown has impacted Manhattan’s overall availability rate and average asking rents.
On the whole, Manhattan’s availability rate was 12.2 percent last month, up 0.2 points from March, preliminary data from Colliers showed. The average asking rent for Manhattan was nearly flat, falling by 3 cents to $55.66 per foot.
At the same time, insiders say more tenants have been looking at office space lately and that there’s been an uptick in early-stage negotiations — known as “trading paper”— between tenants and landlords.
“All of a sudden there is more activity. We are all scratching our heads,” said Joseph Harbert, president of the Eastern Region for Colliers. “There is paper going back and forth and there’s a little more momentum.”
While Sixth Avenue’s Class A availability rate has been inching up over the past year, it’s not the only area seeing office vacancies.
“We realized it’s not just a Sixth Avenue story, it was more broad-based than that,” said Kozel, whose firm analyzed available Class A space from 38th to 60th streets in Midtown.
There were new deals afoot in Midtown, however.
A medical advertising company called Centron signed a more than 27,000-square-foot sublease at 1745 Broadway, the Random House Tower, data from CoStar Group showed. Publishing behemoth Random House — which is consolidating its footprint in the building and sublet the space — was represented by a Cassidy Turley team led by Richard Bernstein, CoStar shows. Centron was represented by CBRE Group’s Gerry Miovski and Barry Finkelman, a source familiar with the deal said.
Meanwhile, Marc Holliday, CEO at Manhattan’s largest office landlord SL Green Realty, said during the firm’s first-quarter earnings call last month that his company was shrinking concession packages.
“Concessions were down significantly in the first quarter. [They were] consistent with prior lows we’ve had in other quarters, but [were] certainly down from our average,” said Holliday, whose REIT has reported its largest recent leases in Midtown. “This is attributable, in some respect, to being very prudent on renewal leases and getting [the] best deals possible.”
The area’s availability rate ticked up by 0.1 point in April to 12.7 percent, though the average asking rent was nearly flat, slipping 4 cents to $65.03 per square foot, the Colliers data revealed.
A block south of Union Square, in a building that has not had any availability for almost three years, three full floors were listed last month.
A search in CoStar shows a steep increase in asking rents in the building at 841 Broadway, since a market low in 2005. A tenant in the building, which is owned by the Feil Organization, paid $30 per square foot that year.
But since then, rents in the building have roughly doubled, CoStar shows. Robert Fisher, Feil’s director of commercial leasing, would not comment on prior leasing rates, but said the asking rent today for the available floors is about $65 per square foot.
Last month, the average asking rent in Midtown South was $50.60 per foot, up a penny from March. The market’s availability rate rose by a slight 0.1 point to 9 percent in April, Colliers figures showed.
“We are getting mostly tech and new media,” Fisher said.
The building’s ability to attract those media and tech companies may be traced back to its proximity to Union Square, as well as the amenities in the building, including the Jivamukti Yoga School and the Jivamuktea Cafe. Both are the kinds of retail selling points tech firms use to attract talent, Fisher said.
While deal volume might be slow Downtown, sources say landlords are not responding by cutting rents. Indeed, the average asking rent rose by 28 cents to $45.73 per square foot last month.
Instead, they are responding by beefing up contributions.
Peter Hennessy, president of the New York tri-state region for Cassidy Turley, is seeing that firsthand.
“If a landlord makes changes in a deal structure, it is around concessions, not around rents,” said Hennessy, whose firm is representing about a half-dozen tenants looking to relocate to space between 20,000 and 40,000 square feet Downtown.
But even as the Downtown availability rate increased more than Manhattan’s other two major markets — it jumped by 0.4 points to 15.7 percent — Brookfield Office Properties, the area’s largest landlord, said it has some major deals in the works that could cut that figure significantly.
“We continue to advance discussions with a pipeline of office tenants with combined space requirements exceeding 4.5 million square feet,” Dennis Friedrich, the company’s CEO, said during a first-quarter earnings call.
If the deals work out, he said he expected them to be finalized by the end of this year or in early 2014.