In a relatively quiet month for Manhattan office leasing, a deal by media giant Viacom in the tight Midtown South market stood out.
The blockbuster deal for a 294,000-square-foot space at 345 Hudson Street, just below Houston Street, helped Midtown South reach the lowest vacancy rate of any submarket in the nation, according to data from Cushman & Wakefield. Vacancy hit 3.5 percent in May, down from 4.7 percent in the prior month.
Premium prices to the north mean “companies from Midtown that are getting priced out are not willing to make the leap Downtown and are looking for less expensive space in Midtown South,” said Danielle Zimbaro, senior director at Cushman & Wakefield. “Traditional Midtown South tenants are expanding, and Downtown tenants are looking for more creative space with large open floor plates and views in Midtown South.”
Cushman & Wakefield reported rents in Midtown South had a slight month-to-month drop of 0.4 percent, in May, slipping to an average of $41.78 a square foot.
Hudson Square was the hub of leasing activity in Midtown South in May. In addition to the Viacom deal, New York magazine signed a 73,000-square-foot lease at 1 Hudson Square. Both companies moved from Midtown.
“Hudson Square was stagnant for the longest period of time, and now it’s seeing a lot of demand it hasn’t seen in the past,” Zimbaro said. “The major difference in Midtown South today is that the demand is solid. It’s creditworthy tenants with a proven track record versus the startups with seed money in the dot-com boom.”
The vacancy rate in the Manhattan office market dropped to 4.4 percent in May from 4.5 percent in April. The Manhattan market saw a 2.6 percent increase in average asking rents in the same period, rising to $61.52 a square foot, according to data from CB Richard Ellis.
Midtown
In Midtown, already high average asking rents inched upward again despite slower leasing activity. Rents rose 1.8 percent to $76.85 a square foot in May compared to the month before, according to CBRE data.
Leasing activity in the Midtown market fell 27 percent from April, with deals recorded on 1.33 million square feet in May.
“Midtown was not slow, although it was not quite as active [as the month before]. 1.33 million square feet is by no means slow,” said Peter Turchin, executive vice president at CBRE. “It’s hard to find a submarket that isn’t performing well,” Turchin added. “There is lower availability and lower vacancy across the board.”
Midtown’s vacancy rate tightened somewhat from 4.1 percent to 4.0 percent from April to May, according to data from CBRE.
And there is still more pent-up demand, with many companies in need of space still on the sidelines figuring out when to make their move.
“Tenants in Midtown have been waiting out on the market; the asking rate numbers have stumped them a little bit,” said Robert Sammons, director of research at Colliers ABR.
Some companies will be driven out of the city by high rents, Sammons said.
“Most of the financial firms will move back offices out of New York City, but it will be a slower procedure than the past,” he said.
Midtown South
For Midtown South, CBRE reported vacancies at levels a bit higher than Cushman & Wakefield, narrowing to 3.9 percent in May from 4.3 percent in April.
Asking rents increased 4.2 percent during the same time period to $44.84 per square foot, higher than the rate reported by Cushman & Wakefield.
The New York magazine and Viacom deals are helping Midtown South generate attention as a center for media companies.
“Midtown South has become very popular for media communications firms,” Sammons said. “It’s cheaper and has funky neighborhoods that fit in with that background and look.”
Since the start of the year, CBS Radio and Clear Channel have also made the move to Midtown South.
Downtown
Asking rates Downtown continue to rise steadily. Prices escalated 2.9 percent in May to a high of $45.80 from $44.51 the month prior.
Despite minor growth in leasing activity, vacancies Downtown actually increased from 6.0 percent in April to 6.1 percent in May.
According to Sammons, rising vacancy rates here are due to a significant block of space added to the Downtown market. The State of New York Court System previously leased the 467,000 square feet at 60 Broad Street, now available at $45 a square foot.
“We still continue to have positive absorption,” Turchin said. “There are 1 million fewer square feet available than there were last year — that’s the real driver in the market. More and more every day, tenants are choosing to expand.”