It’s been a fine time to be a Manhattan commercial landlord, and prospects for next year seem equally robust as rents keep rising against a backdrop of generally declining vacancy rates.
November was another month of encouraging indications, though Class A vacancy rates remained about the same as in September. Colliers ABR reported that vacancy rates for Class A buildings in Manhattan remained at 6.5 percent in November, while the borough’s overall vacancy rate fell to 7.6 percent from 7.8 percent in October.
Class A rents jumped to $66.65, up 5.3 percent over October and 10.4 percent from the end of the third quarter.
“What we’ve seen is a continuation of the improvement in the entire New York market,” said Robert Sammons, director of research for Colliers ABR. “The rents keep going up but people are sticking in the city.”
Consistently high rents convinced many real estate organizations that it’s a good time to buy, seemingly at any price. The Kushner family, for instance, agreed to buy 666 Fifth Avenue from Tishman Speyer Properties for a record $1.8 billion. Up the road, developer Harry Macklowe bought out his former partners at the General Motors Building. That Plaza District tower, purchased by Macklowe and others in 2003 for $1.4 billion, is now thought to be worth somewhere around $3 billion.
“From our vantage point, the market has never been stronger,” said Dirk Hrobsky, a senior vice president at Trammell Crow. “Every deal continues to be an all-time high; most major markets are in a strong position and there’s minimum supply and high level of demand from varied business sectors.”
Midtown
Colliers reported that the vacancy rate for Class A space in Midtown held steady at 5.9 percent as direct availability fell and sublease availability climbed a bit.
The pause in a long decline in vacancy rates did not stabilize rents. November Class A rents in Midtown rose again, this time ticking up 4.7 percent from the previous month, to $77.41 a square foot. Two lagging areas notched Midtown’s most dramatic November increases.
Rents in the Rockefeller Center area were up 6 percent for the month to $77.09 per square foot and rents near Grand Central Station jumped a dramatic 17.8 percent month-over-month to $76.74. According to Sammons, November’s unexpected pause in the decline of the Class A vacancy rate is just a fluke.
“It’s a temporary situation,” he said. “Midtown’s vacancy rate will continue to fall. There are a lot of big players looking for space in 2007.”
Midtown South
High rents in Midtown continued to push businesses interested in Class A and B space to Midtown South. Colliers reported that the overall vacancy rate in the neighborhood fell from 8.2 percent in October to 7.9 percent in November, while the average asking rent rose slightly, moving from $37.18 a square foot in October to $37.87 in November.
“Midtown itself is so expensive that firms are increasingly considering Midtown South,” said Abraham Hidary, president of Hidrock Realty.
Hidary says that Vornado Realty Trust’s $689 million purchase of the Manhattan Mall, located on Sixth Avenue between 32nd and 33rd streets, shows that major investors see the Midtown South market as robust.
“The prices are continuing to escalate and every time a parcel comes onto the market, you get several bids for it,” he said. “They wouldn’t have bought there if they weren’t confident they could make some money,” Hidary said.
Downtown
The Downtown Class A vacancy rate fell for the fourth month in a row, plunging from 8.6 percent in October to 8.2 percent in November, Colliers reported. In addition to the organic growth spurred by the expansion of many firms already located Downtown, some deals continued the trend of relocations of companies escaping high Midtown rents. Law firm Labaton, Sucharow & Rudoff moved its offices from 100 Park Avenue to a 75,000-square-foot space at 140 Broadway.
The Class A average asking rent closed in on the $50 per square foot figure, finishing November at $48.96 per square foot, up from $47.01 per square foot in October.
“Downtown is continuing to strengthen,” Sammons said. “Every month you hear of another firm moving down there, and that is certain to continue as the Midtown rents climb higher.”