Asking rents drop sharply Downtown

Gap grows between asking rents and actual rent paid in Manhattan

Despite large leasing deals such as Time Inc. relocating to Lower Manhattan last month, the average asking rent in all three Manhattan markets ticked down in May, the first time that has happened in at least a year.

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Some leasing executives took the decline in stride, explaining that it was the result of expensive space being taken off the market. But others saw it as part of a broader trend underscoring a relative weakening of the landlord’s position in the Manhattan leasing game.

In the market’s most high-profile price cut, the Durst Organization and the Port Authority of New York and New Jersey cut the asking rent for large tenants eyeing mid-tower space in One World Trade Center by about 10 percent to $69 per foot. The 3.1 million-square-foot skyscraper is just 55 percent leased.

The overall asking rent in Manhattan, impacted heavily by that price cut, fell by 81 cents to $63.78 per square foot last month, from $64.59 per foot in April.

At the same time, the availability rate, which measures space vacant now and space that will be available in approximately 12 months, tightened in Manhattan, declining to 11.2 percent last month from 11.3 percent in April, figures from commercial firm Colliers International showed.

Even so, landlords of Midtown’s modern Class A buildings face some more sobering economic news. The spread between the asking rent and the actual rent paid to the property owner — known as the net effective rent — grew to its highest level since the third quarter of 2009, according to data from commercial firm JLL.

While asking rents have steadily trended up since 2010, the net effective rent took a nose dive over the last year. As recently as the second quarter of 2013, the difference was just over $5 per square foot. Yet through the first quarter of this year, JLL figures showed, it tripled, to more than $15 per foot in Midtown’s Class A buildings.

“The delta between the asking rents and the net effective rent, that is growing,” said Scott Panzer, a landlord and tenant representation broker for JLL. He said he executed four deals in the last 24 months in which the net effective rent is about the same as it was three or four years ago.

The spread grew in recent months because the asking rent steadily increased, while the net effective have declined.

“The asking rents are up, but the net effective rents after amortization of concessions have been roughly the same,” Panzer said. “Three years ago the spread was less, because the asking rents were lower.”


A large space occupied by one of Manhattan’s longest running tenants, DC Comics, hit the market last month. The creators of superheroes from Batman to Wonder Woman will be moving closer to the movie industry — Burbank, California — from the 699,000-square-foot 1700 Broadway just south of Columbus Circle.

The space is part of a block in the building on floors 5 through 9 that has a total of 118,789 square feet being marketed by a Newmark Grubb Knight Frank team of David Falk, Peter Shimkin and Daniel Levine, information from CoStar Group shows. DC Comics, a division of Time Warner, moved to 1700 Broadway in the mid-1990s, according to CoStar, but the publisher has been a fixture in Manhattan since it was launched in 1934.

At the same time, Time Inc., the magazine division of Time Warner that is set to be spun off on June 6, inked a deal to leave Midtown for Lower Manhattan last month.

Other big tenants stayed put in Manhattan’s largest market, such as the Blackstone Group, which renewed and expanded, taking 489,495 square feet at 345 Park Avenue.

The average asking rent in Midtown fell last month by 40 cents to $74.00 per foot from $74.40 per foot, while the availability rate remained flat at 11.6 percent, Colliers figures revealed.

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“There does seem to be optimism in the market, and deals are getting done, even those with lease expirations two to three years out,” said Chemerie Cheng, managing director of research and consulting for Colliers’ New York office. Yet she added, “Grand Central and Sixth Avenue continue to be a bit softer than other segments.” Even so, she said in an email that Sixth Avenue has seen recent activity that could presage a shift. “In general there is upward pressure on pricing but it is not dramatic…yet.”

Midtown South

The average asking rent over the past year has been more volatile in Midtown South than the other two Manhattan markets. It declined last month by 26 cents per foot, to settle at $55.89 per square foot. That was the fifth time the asking rent declined over the past 12 months, following a pattern of rising substantially, then retreating a bit, then rising again, as part of an 8.5 percent increase in asking rents over the past year.

Meanwhile the availability rate tightened by 0.1 point to 9.1 percent in the past month, the Colliers figured showed.

Yelp was poking around for a sizable block of space in the market, which could further tighten the area. The online reviews site was eyeing a 140,000-square-foot lease for two floors at 11 Madison Avenue, between 24th and 25th streets, The Real Deal reported.

Following a flurry of new listings in April, very little in the way of large spaces hit the Midtown South market last month, a review of information in CoStar showed.

The largest new space was for 43,000 square feet, available on a portion of the fifth floor at the 561,271-square-foot office building 28 West 23rd Street, located between Fifth and Sixth avenues, as a sublet from tech firm AppNexus, according to CoStar. A Newmark team has the listing.

“Midtown South’s rents and availability rates remained steady,” Cheng said.


Even as Durst and the Port Authority were cutting asking rents at 1 World Trade, indicating weak demand for the area, Brookfield Office Properties snagged Time Inc. for about 691,000 square feet at 225 Liberty Street, known as 2 Brookfield Place.

The result in the leasing statistics was mixed. The average asking rent declined sharply, by $2.46 per foot to $48.53 per foot last month, the largest monthly drop in at least a year, Colliers figures showed.

But at the same time, the availability rate declined sharply, in part because of the Time lease, falling by 0.5 points to 13.3 percent, the lowest it has been since 2011.

“It is not a simple narrative,” David Cheikin, vice president of leasing for Brookfield Office Properties, said. “We believe we have created a real amenity package to differentiate ourselves from the rest of the market.”

The Downtown market was attracting both large and small creative tenants. A music-recording firm for the television and advertising world, Man Made Music, inked a long-term lease recently for 10,533 square feet in the penthouse floor at 50 Broad Street, a 272,260-square-foot tower, information from CoStar revealed. CoStar showed the deal was made with the rent at $45 per square foot.

Man Made Music, represented by Murray Hill Properties’ Pamela Title, will relocate from a smaller Midtown space in 16 West 46th Street. The tenant needed large column-free space that was quiet, which was a challenge to find, even in the market’s most modern buildings, Title said. In fact, often the older buildings have the right conditions.

“The Downtown buildings are not cookie-cutter buildings,” Title said, and that was good for tenants like hers, offering opportunities to find spaces that work for them, like the penthouse at 50 Broad, built in 1913.