Manhattan office landlords raked in slightly more per square foot from their leases last quarter than in the previous three months, but those effective rents remain stuck below their 2008 peak, commercial brokerage Colliers International reported.
The effective rent in Midtown was $58.15 per square foot, while the rate in Midtown South was $47.37 per foot and $38.10 per foot Downtown, the company reported in a quarterly media briefing held in Midtown. All were up over the past quarter.
The effective rent, also known as the taking rent, is the amount tenants pay per square foot to the landlord after tenant improvements and free rent periods are taken into account.
One anomaly in the Manhattan market was that taking rents have yet to climb back to 2008 levels, even as investment sales prices broke records this year. In Midtown, for example, the taking rent is 31 percent below its peak in 2008, when it reached $84.22 per foot. Yet the sale price for office buildings reached $866 per square foot this year, Colliers reported, up 3 percent from the peak in 2008 of $842 per foot.
Even in Midtown South, where taking rents have been on a non-stop increase since a low of $28.56 in late 2009, remain about 17 percent below peak pricing of more than $57 per foot in 2008.
Midtown asking and taking rents. Source: Colliers International
Michael Cohen, chairman of the executive committee at Colliers, said he did not expect the taking rents to surpass the record levels until financial services firms, which historically occupy a large portion of the market, rebound.
Office building investors are anticipating strong rental growth in Midtown, building on the increases in Midtown South.
James Murphy, company executive managing director, said investors are “underwriting 20 to 25 percent rental growth over the next four to five years, so certainly the market is looking for continued rental growth.”