Beyond the ‘bottom-out’

Movie moguls sign lease, but other tenants 'bummed' as landlords scale back incentives

Last month brought some high-profile lease signings in Manhattan — including by the Weinstein Company, headed by movie mogul brothers Harvey and Bob, OppenheimerFunds and Bloomberg LP. But landlords in many buildings are still solidifying their competitive market edge.

Coming off its success with the Oscar-nominated “The King’s Speech,” the film company took an eight-year lease for the entire second floor of 99 Hudson Street in Hudson Square, which is part of the Midtown South submarket.

Source: CB Richard Ellis

Meanwhile, financial giant OppenheimerFunds brokered a direct deal with its landlord on a 235,342-square-foot lease at 2 World Financial Center in Lower Manhattan, which will replace its current sublease. And growing Bloomberg LP took a massive 400,000 square feet at 120 Park Avenue in Midtown.

While brokers point to these deals as a sign that the market is regaining its strength, agents who represent tenants are feeling the squeeze on the flip side. That’s because as leasing volume has increased, it’s also driven up asking rents in some cases.

Indeed, in specific markets such as the Plaza District, asking rents have climbed to as much as $140 per square foot.

While at 12.5 percent, the availability rate in Manhattan remains at historically high levels, it has come down from 2009, when it reached a peak of 14.5 percent, CB Richard Ellis figures showed.

“I think in certain spaces, tenants are going to have to pay more,” said Robert Yaffa, executive vice president at commercial firm Grubb & Ellis. “We are beyond the ‘bottom-out’ period.

“[Tenants] are bummed. They are bummed,” he added.


Midtown continued to have strong leasing activity last month, led by media giant Bloomberg LP signing a major lease for 400,000 square feet at 120 Park Avenue on the corner of 42nd Street, a building represented by Paul Glickman and Diana Biasotti of Jones Lang LaSalle.

“There is general optimism on the commercial side,” Yaffa said. Yet he noted that because leasing activity has pushed asking rents up, it’s prompted landlords to scale back their incentives.

In January, tenants in Midtown leased 1.8 million square feet of relocation or expansion space, far above the five-year monthly average of 1.2 million square feet, the most recent figures from CBRE showed.

“There is not as much free rent as 12 months ago,” Yaffa said. “Landlords are being very prudent with their [tenant improvement expenses].”

Yaffa is advising a financial money manager, currently in 5,000 square feet in a Class B building in Midtown, which is looking to double in size and take about 10,000 square feet in another Class B building. He said that while there is still plenty of space in his client’s size range, landlords have become less generous.

Even as landlords begin closing their wallets, bargains remain in Midtown. In fact, the most expensive office submarket in the city, along Fifth and Madison avenues, is home to the steepest discounts. The stretch had the biggest gap between what landlords were asking in direct asking rents ($97.29 a square foot) and what existing tenants were asking in sublet asking rents ($50.02 a square foot), January figures from Grubb & Ellis showed.

The spread was fueled by very expensive direct space priced between $100 per foot and $140 per foot in trophy buildings such as 9 West 57th Street and the General Motors Building at 767 Fifth Avenue. The significant sublease availabilities are at 600 Madison Avenue and 555 Madison Avenue, researchers at Grubb & Ellis said.

Midtown South

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The Weinstein Company, which now occupies the entire 11,000-square-foot fourth floor of 99 Hudson Street at the corner of Franklin Street, is expanding. It’s now also taking the full 12,000-square-foot second floor with an eight-year lease.

“They are growing and doing extremely well,” their broker, James Meiskin, president of tenant representative firm Plymouth Partners, said. He declined to provide the taking rent.

After shedding staff in 2009, the production and distribution company had a good year in 2010, with credits for Oscar-nominated films “The King’s Speech,” “Blue Valentine” and “The Fighter.” With this lease, all 17 floors of the 180,000-square-foot building will be fully occupied, said Matthew Bergey, a first vice president at CBRE, who represents the building.

The building’s fortunes have been better than in Tribeca and Hudson Square overall, which have a high availability rate of 16.3 percent, Grubb & Ellis figures show.

But the larger Midtown South area continues to tighten up, with the availability rate dropping to 12 percent, its lowest since December 2008. That’s below both Midtown and Downtown, according to CBRE numbers.

Hudson Square attracts creative users in part because it is less expensive than Midtown and partly due to the environment. “I think it comes down to a feel and a buzz,” Bergey said.


In the Manhattan market that’s been showing the slowest signs of recovery, Downtown brokers hailed the lease signed last month by investment firm OppenheimerFunds at Brookfield Properties’ 2 World Financial Center.

“We see the market as strong and continuing to get stronger,” said Stuart Romanoff, an executive vice president with Cushman & Wakefield, who was one of the brokers that represented the financial firm. The financial company considered options in other locations, including the under-construction 1 World Trade Center, but opted to stay in its current location at its current size. To do that, it converted its sublease from Merrill Lynch, which was set to expire in 2013, into a 15-year lease with the landlord.

“They did take a look at [1 World Trade Center], and it was part of the evaluation,” Romanoff said. “[But] they determined that there weren’t the motivating reasons to move across the street.”

Yet despite the big lease, landlord brokers said there wasn’t much activity for midsize users.

Brokers representing more modest parcels Downtown said interest is still lagging, backed up by figures from CBRE, which showed that in January there were just 260,000 square feet of relocation or expansion deals — 24 percent below the five-year average of 340,000 square feet.

But the availability rate fell by .4 points in January to 13.4 percent, CBRE figures showed.

David Ofman, an executive managing director at landlord Lawrence Group, said his company was beginning to market the entire 28,000-square-foot 24th floor of the iconic Woolworth Building at 233 Broadway, facing City Hall Park.

The space will be available in the fourth quarter, once the current tenant vacates, Ofman said. While general activity has picked up over the past year, he still doesn’t think a tenant will take the full floor, which is priced at $36 per square foot. He said he expects to divide it up.

“I don’t see many 28,000-footers running around,” he said.

Another landlord-representative broker, Nathan Wasserman, echoed that sentiment.

“There seems to be a paucity of full-floor tenants walking through,” he said. To illustrate the weaker Downtown market, he compared the 25-story 80 Maiden Lane in Lower Manhattan, where he is listing space on the 22nd floor, with a similar 16-story property near Penn Station where he is a leasing broker.

“We have a building in Midtown South, at 352 Seventh Avenue, that if we had another five floors, we’d lease it up,” he said.