Midtown office rents clear $80 psf for first time since 2008
Rates push tenants Downtown, where availability dropped despite arrival of 4 WTC
Asking rents for Class A office space in Midtown surpassed $80 per square foot for the first time in five years, according to the fourth-quarter market report from commercial brokerage Cassidy Turley. And while the rental rates ticked up only slightly — up 8 percent to $80.03 per foot from $74.05 in the final quarter of 2012 — the benchmark set a new high that, along with rents topping $70 per square foot in Midtown South, is drawing tenants Downtown.
“We haven’t been there since the last time the market was on the upswing,” Richard Persichetti, head of research for Cassidy Turley, said of the $80 per square foot standard. “A tenant hears Midtown Class A is $80 per square foot, and that also helps Downtown. I think for a tenant to see that $80 versus $55 … suddenly the company is thinking more about some of the other areas.”
Fifteen leases bigger than 100,000 square feet were signed in Midtown in the fourth quarter alone, and despite worries that 4 World Trade Center would flood the Downtown market with extra space, the official launch of the 2.85 million-square-foot tower had little impact on the area’s momentum, as the building was two-thirds pre-leased. The availability Downtown actually declined to 12.9 percent last quarter from 13.3 percent in the last quarter of 2012.
Class A asking rents ticked up 5.9 percent Downtown in the fourth quarter to $55.31 from $52.22 in the same period a year prior. They likewise increased in Midtown South – up 5 percent to $72.70 from $69.21 per square foot – while availability in that neighborhood declined to 8.8 percent from 9 percent.
“Midtown South and Downtown have always been the pressure valve for Midtown historically,” Persichetti said. “But in the most recently cycle Midtown South took off first, which is not something the market’s used to. The tenants are growing from the center rather from the top Midtown market. When Midtown South pricing is increasing, you’re seeing tenants going Downtown because it’s cheaper than both markets, whereas historically Midtown South and Downtown were similar in pricing.”
Overall, Manhattan office asking rents continued a skyward climb to hit $65.61 per square foot, up 10.2 percent over the same period in 2012. New office product totaling more than 4.1 million square feet was completed in the fourth quarter of 2013 – the most seen in more than 10 years, according to the report.