Time to raise the rent

<i>Burned tenants drive spikes in office rates in first quarter </i>

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It’s time to raise the rent — at least according to landlord representative brokers, who were urging their owners to do so in the first quarter.

One of the key trends driving that push was that large office tenants continued to get bumped from preliminary deals as even bigger prospective occupants came along.

Brokers pointed to recent examples such as Wells Fargo being snubbed at 120 Park Avenue in favor of Bloomberg LP, and law firm WilmerHale losing out at 825 Eighth Avenue after Nomura Holding America sought more space there.

Those deals created a wake-up call for landlords by shining a spotlight on the shift in the marketplace, said Mitchell Arkin, executive director at commercial services firm Cushman & Wakefield. Last quarter he met with his approximately half-dozen owners and advised most of them to raise prices.

Those that did pushed them up by 5 percent to 25 percent, he said.

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(Source: CB Richard Ellis)

“When owners saw Wells [Fargo] getting bumped at 120 [Park Avenue], when [825 Eighth Avenue landlord] George Comfort bumped Wilmer for Nomura … when we saw those two things and we started to see multiple proposals coming on the same space, we started evaluating rents on all the properties we represent,” Arkin said.

The buildings that Arkin represents aren’t the only ones that have hiked their rents. The trend was reflected in the broader market stats as asking rents in Manhattan rose by $1.30 per square foot in February, to $49.61 per square foot, the most recent figures from CB Richard Ellis show.

Meanwhile, 1.8 million square feet of new space was leased in Manhattan in February, down from January, when 2.4 million square feet was leased. Still, that was better than the leasing activity in February 2010, when 1.5 million square feet was leased.

Arkin said initially he was skeptical about rising prices, but “then we saw the increased activity.”

While the higher rents are a plus for his landlord clients, tenants are not as pleased. He said the reaction from their brokers has been circumspect.

“Most professional people in this business understand that the market has shifted and prices are going up, especially for larger blocks, and larger blocks in the towers,” he said.


The 44-story tower at 1211 Sixth Avenue, home to the global media company News Corporation, is getting a major new tenant.

Axis Re, a division of Axis Capital, the large Bermuda-based reinsurance company, signed a lease to move to 121,019 square feet on floors 24 through 26, data from CoStar Group shows. The asking rent for the three floors at the 1.8 million-square-foot tower, which is located between 47th and 48th streets, was $65 per square foot, leasing data website MrOfficeSpace.com shows.

That price was a bit above the overall asking rent in Midtown, which in February was $57.97 per square foot, a jump of $2.15 per square foot over the prior month, CBRE figures show.

Axis Re, which was represented by Dana Pike, a senior vice president of George Comfort & Sons, signed in late February, information from CoStar Group shows. Landlord Beacon Capital was represented by Arkin, along with his team members Josh Kuriloff and Ethan Anderson.

Cushman, George Comfort and Axis Re declined to comment.

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In Midtown, even as the asking rent jumped sharply, the availability rate remained flat at 12.4 percent and leasing activity slowed in February, CBRE figures show.

Arkin said he expected more space to be put on the market soon. He said much of that new product is currently housing larger tenants who have inked deals for new locations, but have not yet vacated their existing offices.

“When it does get put on the market, that is going to add product,” he said.

Midtown South

Leasing brokers say Google’s December purchase of the 3 million-square-foot 111 Eighth Avenue in Chelsea, between 15th and 16th streets, will attract additional technology firms to the area.

One landlord who put a listing on the market last month hopes to cash in on that possible trend. Albanese Development, the new owner of the Chelsea Art Museum building at 556 West 22nd Street, is looking for tenants for its three-floor, nearly 35,000-square-foot building at 11th Avenue.

Albanese bought the property last year, while the property’s owner was in bankruptcy, for $19.3 million, and the museum will occupy the space until Dec. 31.

Jesse Rubens, senior executive managing director at Murray Hill Properties, the leasing agent for the space, said the asking rent is $2 million for the whole building, or about $58 per square foot.

“Our intention is to lease it to a single user who intends to make a statement,” he said. “It doesn’t have to be an assortment of art galleries. It should be a tech firm that wants to be in Google’s orbit. What tech firm would not want to be somewhere near them in their own building?” he said.

Other possible uses would be an advertising firm, or even retail uses like an event space with a restaurant, or a fashion space with a retail component. The asking rent for the building is above the overall average asking rent in Midtown South, which fell in February by $0.37 per square foot to $42.57 per foot, but is up since the start of the year.



Downtown remains the only market where rents are lower than they were a year ago, despite moderately increased activity.

Keith Lipstein, a managing director at ABS Partners Real Estate, signed up a new tenant at the end of February for the 350,000-square-foot 44 Wall Street, but has not seen rising rents in Lower Manhattan.

“There is definitely increased interest in the marketplace over the past year. [But] I am not seeing rental rates climbing, really. It is still a difficult market,” he said.

The small foreign exchange trading company Forex Capital Trading Partners, represented by broker Thomas Reilly of Thomas P. Reilly & Co., leased 4,818 square feet of office space on the 16th floor of 44 Wall Street, located at William Street.

Average asking rents in the Downtown market were down $0.13 per square foot in February to $38.01 per square foot, while new leasing activity was down slightly, to 240,000 square feet.

Lipstein noted that while the Downtown market is a magnet for financial firms like Forex, he was expecting more publishing companies to move in over the coming years, in the mold of the New York Daily News moving to 4 New York Plaza and Condé Nast moving to 1 World Trade Center.

“There is a feeling there is going to be a little bit of a sea change Downtown, not just being financial services,” he said.