In a trend that recalls the heady days before September 11, the number of Class A Manhattan office buildings at 100 percent occupancy is at its highest level in the last five years.
More than 20 percent of Manhattan’s Class A office buildings were fully occupied at the end of the first quarter, according to data from brokerage Colliers ABR. The group includes such marquee properties as the General Motors Building, which has among the highest office rents in the city, and buildings like 919 Third Avenue.
“We’re coming to a moment in the market where there is a real paucity of space in the core district,” says William Macklowe, president of Macklowe Properties, which owns the GM Building at 767 Fifth Avenue.
There were 60 buildings with no available space out of Manhattan’s total Class A office inventory of 278 buildings. Not surprisingly, most are in Midtown. Midtown had 39 Class A office buildings at full occupancy at the end of the first quarter. Downtown had 14 such buildings and Midtown South had seven.
Among the companies benefiting from the tight office market is Equity Office Properties Trust, which has five of its eight Manhattan buildings at full or nearly full capacity.
“The availability rate generally, depending on whose statistics you look at, is 7 or 8 percent in Midtown,” said Michael Berman, vice president of leasing for the REIT’s New York area. “It could definitely go down another two or three points.”
The number of full occupancy buildings in Manhattan has increased from 2002, when the year-end total was 45 out of 269 Class A buildings. Today’s number is still down from the record 72 buildings fully booked up at the height of the dot-com boom.
When his firm bought the GM Building in 2003, occupancy was only about 70 percent, said Macklowe. The building reached full occupancy in February. Industry sources say rents for the two recent transactions that led to full occupancy in the building ranged up to $145 a foot. Such high numbers reflect the simple fact that laws of supply and demand are benefiting landlords. Since December, rents have risen as high as 15 percent.
Asking rents for large blocks of space currently on the market are in the mid-$70s to mid-$80s per square foot, while spaces of 10,000 to 15,000 square feet in some higher-end buildings call for $100 per square foot or more.
Major addresses in Midtown that are booked up include 450 Lexington Avenue, with 910,000 square feet of space; 383 Madison Avenue, with 1.2 million square feet; 4 Times Square, with 1.6 million square feet; 5 Times Square, with 1.1 million square feet; and 745 Seventh Avenue, with 1 million square feet.
Lack of new office construction, a strong stock market and continuing uncertainty about the future of the World Trade Center site are keeping the Midtown market hot.
Daniel Blanco, executive vice president of Broad Street, which recently bought 370 Lexington Avenue, a 27-story, 296,000-square-foot building in Midtown, said demand for remaining space in the building has been strong. The building has 20 percent vacancy, and the firm looks poised to capture high rent levels when it fills that space.
“It’s been absolutely incredible in terms of the amount of activity,” Blanco said. “We’ve had about 60 showings in less then six weeks and lots of bids going back and forth.”
Donald Huffner Jr., senior vice president for Equity Office, said the publicly traded firm is using several tactics to juggle the increasing occupancy among its buildings. While full occupancy is ideal for building owners, it also presents challenges.
“From the investor standpoint, full occupancy is good, but you never want to leave a tenant without room to grow,” Huffner said.
Huffner said he’s been forced to utilize his entire portfolio of buildings to shuffle growing tenants with limited space. “The flexibility extends beyond a single building and into the whole portfolio,” he said. “We are actually looking to move our offices to accommodate another tenant looking to grow.”
Equity Office is also looking to advance termination dates for some tenants who are already scheduled to move out of the building when their leases expire, in order to sign new tenants at higher rates.
In order to stay in Midtown, tenants are seeing fewer concessions and fewer chances to renew leases early, in addition to paying more in rent.
Also, the frenzy for office space is putting improvement costs on the tenant. As the market tightens, the concessions, which typically include free rent and tenant improvement costs, are decreasing.
Yet these downsides haven’t slowed down the competition for space. Both Huffner and Blanco are receiving multiple bids for spaces, they said.
Midtown had the greatest number of fully occupied Class A buildings of any submarket, with 39 at the end of the first quarter, the highest number since the 46 fully occupied buildings in the second quarter of 2001. But Downtown is doing almost as well proportionally.
There were 14 fully-occupied Class A buildings Downtown, less than the 15 buildings seen at the end of the fourth quarter of 2004. But neither of those figures are too far from the dot-com days of 2001 when 18 buildings were fully occupied.
Midtown South’s seven fully occupied buildings were less than the eight booked-up buildings seen in the fourth quarter of 2005. But Midtown South has come a long way as a submarket; during the dot-com boom there were only an identical eight buildings at 100 percent occupancy.
“The marketplace is in an uptake and the activity is keeping us energized,” said Blanco of Broad Street, which has buildings in Midtown and Downtown. “It’s going to be a great year.”
With additional reporting by Vanessa Londono
Go to chart: Number of Class A office buildings fully occupied