The new buzz word: Diversification
Property owners no longer relying on the usual industries to snap up space
Brokers frequently give tech companies the credit for keeping the Manhattan office leasing market afloat at a time when financial and legal services are shrinking their footprints. But many of the larger deals inked over the past year have been in other industries altogether.
In fact, over the past four quarters there’s been a much more diverse range of companies signing office leases of 100,000 square feet or more in Manhattan compared with the pre-recession year of 2007, according to a new analysis by commercial firm Jones Lang LaSalle.
In its analysis, JLL found that firms striking deals for more than 100,000 square feet in 2007 fell into just seven categories. Those included finance, legal, government and high-tech. In contrast, in the 12 months through September, JLL identified 15 major categories — including new ones such as health care, education, retail trade, business services and manufacturing — that firms looking for those large spaces fell into.
“I think it’s clear we are getting a more diverse mix of large tenants,” said Derek Trulson, an international director at JLL who mainly focuses on tenant representation.
Indeed, financial services fell from nearly a third of all large deals in 2007 to under 13 percent over the past year, while legal services declined from almost a quarter to under 10 percent.
Meanwhile, education, which did not appear on the list in 2007, represented roughly 10 percent of the deals in the last year, and health care accounted for 6.5 percent.
For Manhattan overall last month, the average asking rent rose by $0.11 per foot to $59.25 per square foot compared to September. The availability rate — which measures the amount of office space that’s available or will become available over the next 12 months — was flat at 11.5 percent, data from commercial firm Colliers International showed.
At Mitsui Fudosan America’s 1251 Sixth Avenue in Midtown, a financial tenant may be on its way out.
The space — which spans 62,400 square feet over floors 52 and 53 — is currently occupied by the hedge fund Moore Capital Management, but was listed last month with an occupancy date of August 2014, according to information from the data firm CoStar Group. Newmark Grubb Knight Frank, which handles leasing in the 2.4-million-square-foot tower, has the assignment. The firm did not respond to a request for comment.
According to news reports, Moore moved into the Rockefeller Center space in 1993.
The hedge fund declined to comment, but a source close to the firm said it has not decided whether it will stay or go. It’s unclear whether the firm is in negotiations over its rent.
CoStar did not list the asking rent for the space. However, the average asking rent for Midtown remained flat last month, rising by a penny per square foot to $69.37, while the availability rate rose by 0.1 point to 11.7 percent, according to the Colliers data.
The sharp rise in asking rents in Midtown South over the past several quarters has led some landlords to reconfigure old space and put it on the market at prices that would have been unheard of in the past.
Landlord Buchbinder & Warren listed the entire 6,935-square-foot sixth floor last month at 1 Union Square West, a Class B building completed in 1890 and designated a city landmark in 1985. The asking is $65 per square foot.
It is the first time a full floor in the nine-story structure at the corner of 14th Street has been brought to market since the owner bought it in the 1970s, said Eugene Warren, a founding partner of the firm.
“We never offered a full floor before, it was always multiple tenants,” he said. He added that the company is testing the market with this floor, and that if it goes well, it may try offer other full floors in the future.
The building’s $65-per-square-foot asking rent is far above the average asking rent for the Midtown South market, which last month shot up by $1.48 per square foot to $54.56 per foot, the Colliers figures showed. The availability rate for Midtown South was flat at 9.1 percent, the firm reported.
The variety of tenants Downtown has been expanding for several years, most notably with the surge in publishing firms such as Condé Nast at 1 World Trade Center and the Daily News at 4 New York Plaza.
But brokers have their eyes on apparel as the next big industry to sign large leases in Lower Manhattan, said Robert Constable, an executive vice president at Cushman & Wakefield who focuses on Downtown. That industry has steered clear of the area, but like other industries is now being drawn in by the relatively affordable rents.
“Of the six major fashion companies in the market right now [looking for space in Manhattan], all have looked at Downtown options,” he said, adding that some have even made offers.
“If two of the six come Downtown, that would be groundbreaking,” he said. He declined to name those fashion companies, but sources say firms such as J. Crew and Polo are on the hunt for space.
In addition, the non-profit sector has been actively leasing space in Lower Manhattan.
The Institute for Career Development, a work-force development company for veterans and people with disabilities, inked a 10-year lease for 25,000 square feet last month on the fifth floor of 123 William Street with the building’s new owners. Last month, property investment firms East End Capital Partners and GreekOak Real Estate purchased the building, which is approximately 50 percent vacant, for $133 million.
A leasing team led by CBRE Group’s Bradley Gerla that includes Jonathan Cope and Howard Fiddle, is representing the building.
The asking rent for the space (and all lower floors) in the building is $36 per foot. Space on the higher floors of the 27-story building is $48 per foot.
Gerla said the building had significant vacancies because the prior owner considered converting it to a residential apartment building, but instead sold it.
“A lot of not-for-profits are looking at [the building], as well as a couple social media and some insurance firms,” Gerla said, adding that there are leases out for floors six and seven, in addition to another tenant considering a large block.
John Wheeler, a managing director at JLL, who was not involved in marketing at the building, said the location is a draw, in addition to the building’s pricing.
“The center of Downtown is moving north and west,” Wheeler said, adding that it’s being driven by developments such as the Fulton Center transit hub.
The availability rate in Lower Manhattan remained flat at 14.7 percent last month, but the average asking rent declined slightly, by $0.11 per foot to $47.37 per foot, the Colliers figures showed.