The way office-leasing tenants value the two most basic variables for space in Manhattan, location and the vintage of the building, is undergoing a sea change, creating unpredictable results in pricing, brokers say.
The change has been creeping in over several years, in part driven by rents in the core of Midtown South eclipsing rents in much of Midtown, and by the popularity of other pricey submarkets.
Several recent lease deals underscored the vagaries in the market for Howard Grufferman, vice chairman of the New York office of commercial brokerage Colliers International. He pointed to two leases, both in large, traditional office buildings, one along Third Avenue a block from Grand Central Terminal and another on Broadway two blocks south of Times Square, in the heart of the Garment District.
By any traditional method, the Grand Central space would typically command a higher rent, but instead it was in the mid-$50s, while a deal in the once-stodgy Garment District was in the $70s, he said.
“It used to be we could scale the rents relative to geography,” Grufferman said. The highest rents would traditionally be in the central business district. “That does not work anymore,” he said. “I have never seen it so disjointed.”
Overall, the average asking rent for Manhattan was up last month to $62.91 per square foot, from $60.57 per foot in January, information from Colliers showed. The availability rate, which measures space that is available now or will be available in the next 12 months, tightened by 0.1 point to 11 percent.
Even as some buildings in the core of Midtown are seeing modest rents, the average asking rent for the market overall rose substantially last month, Colliers data showed.
That was driven in part by space with above-average asking rents that hit the market, including large blocks at the Durst Organization’s 4 Times Square. Condé Nast is slated to move to 1 World Trade Center later this year, and more than 800,000 square feet at the 1.8 million-square-foot tower was listed, brokers said. The asking rent starts at $83 per square foot.
A Durst spokesperson declined to comment on the listing.
Other new spaces included blocks at Solow Management’s Plaza District tower, 9 West 57th Street, with asking rents as high as $200 per foot, Colliers statistics showed.
That was far higher than the average asking rent in Midtown last month, which rose by $3.04 per foot in February over the prior month, to $73.25 per square foot, while the availability rate declined by 0.2 points to 11.5 percent, the Colliers figures revealed.
“We saw late in the month some declines in asking [rent] in base floors in lesser-quality buildings. However, tower floors really saw an increase in asking [rents],” said Peter Kozel, head of research for Colliers’ New York office.
However even as the asking rents ticked up, some brokers said rents are being supported by longer free-rent periods and more money given to tenants to build out their space, known as work letters. Landlords want a higher rent on paper to hit numbers required by their lenders, they said.
While Downtown is providing steep competition to Midtown South on a price-per-square-foot basis, landlords are facing an ever-increasing competition from Brooklyn’s Dumbo neighborhood.
Prospective tenants hungry for the Midtown South creative vibe, but priced out of the area, are searching Downtown for cheaper alternatives. But some find Lower Manhattan lacking in the sought-after spirit, and instead are turning to Dumbo, said Dirk Hrobsky, managing director of the New York office of commercial brokerage DTZ.
Hrobsky declined to identify which technology clients he’s representing.
“Some of the high-tech [clients] would like to be in Manhattan, but we have ended up having our focus in some part directed to Brooklyn, because it is hip and a good alternative to Midtown South,” Hrobsky said.
Generally in Dumbo, the average asking rent for space he is considering is about $45 per square foot. That is significantly below the average asking rent in Midtown South, which was $55.79 per square foot last month, up $1.08 per foot from January. The market continued to tighten, with the availability rate falling by 0.2 points last month to 8.4 percent, the Colliers data showed.
While some tech firms are heading across the river, others continue the march to Lower Manhattan.
San Francisco-based tech teaching institute Dev Bootcamp signed a short-term sublease for a 14,200 square foot space in Swig Equities’ 48 Wall Street, data from leasing database CompStak revealed. The programming school, which also has a school in Chicago, was founded in 2012 and is growing quickly.
A Lee & Associates team of Dennis Someck, Mitchell Kunikoff and Justin Myers represented Dev Bootcamp in the lease signed in early 2014 with an asking rent of $35 per foot. The group had a tight deadline to find space for the school, which is slated to open later this month.
They focused their search in Lower Manhattan not only because of the lower rents, but also because of its growth as a tech center, Someck said.
“We did not have time for a big build out, and this really fit the bill,” Someck said.
Dev Bootcamp took space currently occupied by shareholder governance analysis firm Glass, Lewis & Co., which is moving to 44 Wall Street, CompStak reported. Glass, Lewis did not respond to requests for comment. Studley brokers Greg Taubin and Gabe Marans represented the firm.
While Lower Manhattan continues to be a lower-priced alternative to points north, rents are rising. The average asking rent last month ticked up to $49.88 per foot, from $48.22 per foot in January. Downtown’s availability rate rose by 0.2 points to 13.8 percent last month, the only market to see an increase, the Colliers statistics showed.