Manhattan leasing strong in Q3; Midtown market stratifies
Manhattan office leasing continued to recover in the third quarter, although some segments of the market began to stratify, per reports from leading commercial brokerages, released today.
Class B rent increases outpaced those for Class A space, while the very high-end of the leasing market held strong – more than 50 leases with taking rents over $100 per square foot have now been signed in 2013, Cassidy Turley’s numbers show.
Demand overall was strong, with 1.3 million square feet absorbed this quarter alone – bringing the total for the whole year to 1.9 million square feet, the report shows. Average asking rents in Manhattan were $63.55 per square foot, up 12.4 percent from $56.52 year-over-year, and up 2.3 percent from $62.13 quarter-over-quarter.
Meanwhile, asking rents for Class B in Manhattan rents soared – up $2.50 per square foot, or 5 percent, to $53.28 on average quarter-over-quarter, while those for Class A inched up only $0.68, or about 1 percent, in the same period. Last quarter, in Manhattan’s tightest market – Midtown South – Class B rents actually eclipsed Class B rents in tonier Midtown, as The Real Deal reported.
“Class B is outperforming Class A as the bulk of the demand is from technology, advertising and media tenants – creative types who are not looking for the corporate-style space in the prime Midtown markets,” Cassidy Turley’s vice president of research, Richard Persichetti, told The Real Deal.
At the same time, price stratification in the Midtown market widened, with the average ask for Class B space at $56.94 fairly steady from the previous quarter’s figure of $53.86, even while nine deals with taking rents in the three digits — signaling leases at prime buildings— were also inked, Persichetti said.
In fact, in the higher price strata, such as the Fifth/ Madison submarket, average asking rents skyrocketed. In Fifth/ Madison, they grew 33.4 percent, to $106.59 from $79.91 year-over-year, the data show. The Park Avenue submarket was also strong, with average asks at $89.83, up 16.5 percent from $77.11 in the third quarter of 2012.
Studley’s third quarter report even called the market a “‘trickle up’ rather than a ‘trickle down’ recovery,” alluding to the upper end of the market’s recent rise.
“Tech companies and private equity, much like the big banks in the last expansion, are taking up space almost with a blind eye to escalating costs,” the report reads. “Cost is part of the decision-making equation but it is secondary to a taste for space in particular neighborhoods,” especially the Plaza District in Midtown and Midtown South.
Studley’s report also pointed to “several hedge funds,” that took space in the GM Building, one of the city’s priciest office buildings.
Colliers International also released a snapshot of their third quarter office figures today, which showed Midtown’s availability rate declined to 11.6 percent, down from 12.3 percent in the second quarter, as well as a large gain in the Plaza District submarket where rents grew 3.4 percent from the second quarter, to $77.59 per square foot.
In Midtown South — which TRD recently reported was pricing out its bread and butter tenants, technology companies – availability remained low and prices rose considerably, underscoring the market’s continued appeal. Average asking rents climbed $7.65 per square foot to $75.02, up 41 percent from $53.19 in the third quarter of last year, Persichetti said.
However, the average is somewhat skewed by the considerable asking rents at Minksoff Equities’ under-construction 51 Astor Place, which are set about $30 per square foot above the rest of the market, the report shows. But even with the addition of the 400,000 square feet of space the East Village tower brought to market, availability remains the lowest in the city, at 8.7 percent, roughly steady from 8 percent last year at this time.
Downtown, rents remain relatively low, but the average asking figure of $47.74 per square foot was still up 19 percent from the third quarter of last year, when the average ask was $39.95. Tenants priced from the more northerly markets continue to sign leases, with more than 900,000 square feet of space signed in the quarter and 94 tenants that moved south of Canal from Midtown and Midtown South in the last seven quarters, the Cassidy Turley report says.
Those tenants were largely educational and media – advertising firm Droga5 inked a deal at 120 Wall Street for 92,000 square feet of space, while HarperCollins nabbed 180,000 square feet at 195 Broadway (deals that closed in the third quarter, though they were reported earlier). Nyack College and the Pacific College of Medicine also each inked deals, at 2 Washington Street and 110 William Street, respectively.
However, Downtown’s availability will expand considerably next quarter, when 4 World Trade Center hits the market, bringing 1 million square feet of new space to the market.