Availability tightens as Condé Nast heads to WTC

The agreement by publisher Condé Nast to lease 1 million square feet at One World Trade Center underscored a trend of companies willing to move away from their traditional core locations in Midtown.

“Tenants are being more open about where they are located, which is refreshing,” David Goldstein, an executive vice president at commercial advisory firm Studley, said. “It is terrific to bring a creative use into an area that is traditionally dominated by financial services, legal services, insurance companies and the like.”

That openness facilitates another long-term trend. With development opportunities tight in the center of Midtown, over the years, builders have been constructing towers farther west and south, a study by commercial firm CB Richard Ellis shows. Howard Fiddle, a company vice chairman, illustrated the shift over the decades in a presentation last month to the commercial real estate trade group NAIOP.

New construction, which was centered around Sixth Avenue in the 1970s, began to move west in the 1990s and 2000s, and most of the major new development projects being considered today are at Eighth Avenue or farther west, such as Boston Properties’ site at Eighth Avenue and 55th Street, or Related Companies’ Hudson Yards at 10th Avenue and 33rd Street.

“As a firm we are quite bullish about the viability of the south and west’s pull on the Midtown market,” Fiddle said. “It is not about ‘if,’ it’s ‘when.'”

Overall asking rents in Manhattan rose by $0.41 per square foot to $50.34 per foot in April from the month before, and the availability rate fell by .2 points to 12.2 points, the most recent figures from CBRE showed.

Midtown

Even as the leasing market improved over the past year in Midtown, there were still firms returning unneeded blocks of space to the market as recently as last month. The Conference Board, the group responsible for publishing an influential index of leading economic indicators, put its entire 63,594 square feet at Rudin Management’s 845 Third Avenue on the sublet market; the block is made up of part of the second floor, and all of the third and fourth floors, information from data firm CoStar Group shows.

Also, media company CBS listed floors two through five at its headquarters building, known as Black Rock, at 51 West 52nd Street, for a total of about 94,000 square feet.

While together those two blocks of space don’t move the market, they show that even in an improving market, occupancy remains in flux.

Average asking rents rose by $0.59 per square foot to $58.73 per square foot in April from the prior month, and the availability rate remained flat at 12.3 percent, figures from CBRE revealed.

Midtown South

With Midtown South’s office leasing environment the tightest in Manhattan, brokers in recent months have put several large blocks of Class B space on the market.

“These are not in the ‘mainstream’ of big blocks of space,” said Nicola Heryet, a senior managing director at Cassidy Turley. “Many of these buildings are not going to appeal to your average 100,000-square-foot tenant. You are not going to get a law firm going over there,” she added. However, the parcels would attract schools and creative users, she said.

Insiders added that some of the space was so-called shadow inventory, which owners had kept off the market even though it was unoccupied, reluctant to lease it for a low price, while other space was composed of expiring leases.

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In one of the largest recent additions, the owner of the New Yorker Hotel building at 481 Eighth Avenue at 34th Street, the Holy Spirit Association for the Unification of World Christianity (also known as the Unification Church), put 243,000 square feet of direct space on the market in February, data from CoStar showed.

A Cassidy Turley team that does not include Heryet took over the agency from Newmark Knight Frank, and is listing floors five, seven, eight and nine, as well as 14 through 18.

Other large blocks on the market are 132 West 31st Street, where about 127,000 square feet was listed earlier this year, and 320 West 31st Street, where about 173,000 square feet was listed in the first quarter of the year.

John Picco, executive director at Cushman & Wakefield and part of a team leasing the space at 132 West 31st Street, said the five floors were not yet available. Instead, he noted that the landlord was working to assemble them as a large block composed of 25,300-square-foot floors, which are now occupied by several different tenants.

The landlord has also been in negotiations with a possible tenant, but Picco would not elaborate. He said the space was attractive to schools and office users, among others.

“Generally, there are not a lot of options for large spaces [in Midtown South],” he said.

In Midtown South, the average asking rent rose by $0.69 per square foot in April to $43.41 per foot, and the availability rate dropped sharply by .4 points to 11.1 percent, CBRE statistics showed.

Downtown

While the move by Condé Nast to the World Trade Center will have repercussions beyond the office space from its style-setting tenant, the lease in itself does not have a large impact on the market, still the weakest in Manhattan.

The discount between asking rents Downtown and in Midtown makes the move attractive, Picco said, noting recent deals like law firm WilmerHale at 7 World Trade Center, and American Media at 4 New York Plaza.

“I think we’ll see more of that,” Picco noted.

Keeping downward pressure on rents are still-significant blocks that Merrill Lynch is expected to give up in the World Financial Center, as well as Goldman Sachs’ former headquarters at 85 Broad Street, which remain mostly vacant.

“Downtown still has more inventory. There is still a lot of lower-cost bulk space that has to be taken,” Goldstein said. “It takes a lot of absorption to move the needle.”

However, in a mark of confidence in the market, Jones Lang LaSalle recently listed an asking rent at 85 Broad Street of $47 per square foot, Fiddle said.

The average asking rent Downtown was $38.68 per square foot, down $0.65 per foot in April from the prior month, but in a positive sign, the availability rate fell by .2 points to 13 percent. That is the lowest level since peaking at 15 percent in June 2010, CBRE figures show.