The stories of two of Larry Silverstein’s World Trade Center towers — one long completed, and one still under construction — told two sides of the office leasing market last month.
Showing the renewed strength in the market, Silverstein’s five-year-old 7 World Trade Center lured the law firm WilmerHale, which was shut out of Midtown’s Worldwide Plaza, to lease 210,000 square feet.
But illustrating that the leasing market, and the economy in general, are not yet in the clear, a $900 million bond offering for Silverstein’s 2.3 million-square-foot 4 World Trade Center, which is under construction, was postponed.
Nonetheless, a closer look at the Manhattan leasing market last month may provide comfort to landlords, who have been raising asking rents recently — even as businesses are pessimistic about a weak housing market and unrest overseas.
Asking rents for Manhattan overall rose by $0.32 per square foot to $49.93 per foot in March, the most recent data from commercial firm CB Richard Ellis shows. The availability rate, measuring vacant space and space that will be available in the next 12 months, ticked down slightly by .1 point to 12.4 percent.
Perry Mesmer, a senior managing director with Colliers International, said his landlords would be raising rental prices in buildings in Midtown South, where he specializes, in the coming weeks.
“Landlords are raising their prices as the market gets better,” he said.
Midtown
Two brokers looking for space for a high-end technology firm in the Plaza District are running into the reality of rising rents and less flexible landlords.
“[Building owners] are willing to wait it out,” said tenant broker David Starr, a senior associate with UGL Equis, an international commercial services firm with offices in Midtown.
He and Dirk Hrobsky, a company managing director, were hired earlier this year to find up to 6,000 square feet for the tech client, which is looking to relocate and expand. The company, which the brokers declined to identify, is currently located in the area, but in a building where it is hemmed in and can’t grow, Hrobsky said.
The client is looking in Class A towers such as the 1.1 million-square-foot 599 Lexington Avenue, the 1.5 million-square-foot 9 West 57th Street and the 140,000-square-foot 545 Madison Avenue. Asking rents in such buildings were as high as $140 per square foot, a report released last month by CBRE showed.
Starr said he hasn’t personally seen rent increases in recent weeks, but that he has seen tenants losing their leverage to negotiate rents down. Landlords are confident enough to hold out for a tenant that will accept their numbers, he said.
Asking rents in Midtown were only up by a slight $0.17 per square foot in March to $58.14 per square foot, CBRE data revealed. The availability rate, which has remained in a narrow band for several months, fell slightly by .1 point, to 12.3 percent.
But it appears that high-end buildings are seeing even more dramatic spikes in rent than the overall Midtown market. An uptick in signed deals, which was documented in several reports put out by the big commercial firms last month, provided evidence speaking to that point.
In the first quarter, there were 13 leases completed above $100 per square foot, compared to 18 in all of 2010, figures from Cushman & Wakefield showed.
Of course, that’s still far behind peak years. In 2008 there were 90 deals done above $100 per foot.
Midtown South
Media company KarmaloopTV subleased the entire 10,000-square-foot seventh floor at 122 West 27th Street between Sixth and Seventh avenues last month, Colliers’ Mesmer said.
“It was a very easy deal — relatively quick,” Mesmer said. The space was put on the market in the first weeks of the year, with an asking rent of about $31 per square foot.
The built-out space, which the company will use for its executive offices, has a short lease that runs until the middle of 2014.
The relatively brief term was a good fit for the Boston-based tenant, which was testing the waters with its first office in New York City, the company’s broker, Newmark Knight Frank’s William Mendelson, said.
Mesmer represented the original tenant, Sonic Boom Media, which was moving out of the space. He said leasing activity appears to have slowed from the crush of last year, “but that could be a reflection that a lot of space was rented,” he said.
Asking rents rose slightly in Midtown South, by $0.15 per square foot in March, to $42.72 per square foot, while the availability rate fell by .2 points to 11.5 percent, CBRE statistics showed.
Downtown
Larry Silverstein’s 1.7 million-square-foot 7 World Trade Center is putting out a bullish “for rent” sign on the 46th floor, where it is seeking more than $70 per square foot, even as taking rents through the first quarter in the Downtown market have not broken the $60-per-square-foot threshold since 2009.
Late last month, CBRE, the leasing agent for Silverstein’s tower, listed four pre-built spaces on the 46th floor for $72 per square foot, the highest asking rent the landlord has sought for the building since mid-2008, figures from data firm CoStar Group show.
In addition, it is the highest published asking rent currently Downtown. (Asking rents for the unfinished 1 World Trade Center are reported to be about $80 per square foot, but are not posted on CoStar or elsewhere yet.)
If those numbers are achieved, they would be by far the highest taking rents since 2009, figures from a first quarter 2011 market report by Cushman & Wakefield showed.
That report revealed that there have not been any lease deals with taking rents above $60 per square foot since 2009, when there were three.
The higher pricing, observers noted, indicates Silverstein believes he can achieve top rents.
“Pre-builts typically don’t come down [in price]. Landlords stay close to their ask,” said Richard Persichetti, vice president of research at Grubb & Ellis, who was not involved in the marketing of the World Trade Center space. Neither CBRE nor Silverstein would confirm the asking rents or comment on the WTC listing.
The 46th-floor units were listed just a few weeks after law firm Wilmer Cutler Pickering Hale and Dorr, known as WilmerHale, inked a deal in early April for 210,000 square feet on floors 41 through 45, where asking rents were $62 per square foot to $65 per square foot, figures from website MrOfficeSpace.com showed.
According to CBRE, asking rents Downtown rose by $1.32 per square foot in March to $39.33 per square foot.
The last time the 52-story 7 World Trade Center had higher asking rents was in 2008, two years after it was completed, when Silverstein was seeking $75 and $80 per square foot for raw space.
Leasing was weak Downtown in March, the most recent figures show. That month, only 230,000 square feet of new space was leased, below the average of 390,000 square feet, CBRE statistics showed.
Yet despite the sluggish month, the availability rate dropped by .3 points because Citigroup pulled 233,000 square feet of space off the market at 111 Wall Street.