Rents head north in Midtown South as office vacancy rates dip
UPDATED, 12:15 p.m., Feb. 7: Class A office space in Midtown South tumbled to its lowest vacancy rate since early 2006 while asking rents across Manhattan lurched upward, according to the January Manhattan Office Market Report from commercial brokerage Cassidy Turley.
Manhattan office rents hit an average ask of $66.34 per square foot in January – an 11.4 percent year-over-year uptick from $59.53 at the start of 2013. Vacancy rates fell slightly, to 10.8 percent in the first month of the year, down from 11.4 percent in January of 2013, as more than 5 million square feet were leased across Manhattan.
Midtown South saw the biggest boom, where vacancy across all five submarkets declined, largely on the strength of IBM’s Watson Group’s lease for 120,000 square feet Edward Minskoff’s 51 Astor Place. Class A asking rents in the area hit $71.75 per square foot – up 6 percent from $67.54 in the same period last year. Nine new leases were recorded in January, up from only three signed in the first month of 2013.
“The major deals done in Midtown South, they’re moving into completely refurbished buildings — new construction like 51 Astor,” said Cassidy Turley broker Bryan Boisi. “Midtown has some similar assets, like 510 Madison, but downtown 51 Astor and 245 West 17th Street, these buildings are completely redone. And, they’re commanding nice rents based upon fact that there’s no competition.”
January Midtown office vacancies reflected the defection to Midtown South, dropping to 12.2 percent from 12.6 percent at the same time last year, despite the opening up of Conde Nast’s 817,252-square-foot space at the Durst Organization’s 4 Times Square. The spread hit the market in July and was a big contributor to the newly-available space, though not an unexpected one.
”When space comes on market in January it’s not that troublesome – it tends to recover itself by the end of the year,” Persichetti said.
Midtown Class A rents, meanwhile, ticked up 3.6 percent to $80.89 per square foot in January, up from $78.01 per square foot during the same period last year.
“There was still some good leasing activity in Midtown and rents continued to go up,” Persichetti said.
Still, Midtown office properties may have to up their game in order to compete with Midtown South, Boisi said. Reflecting on Mayor Bloomberg’s shelved plan to rezone and update Midtown East, he described the Grand Central submarket as “stale.”
“When you look at who’s been leaving Midtown/Grand Central and going down to Midtown South, they’re qualified tenants — Facebook, Twitter,” Boisi said. “These guys are capable of paying high rents and want to be in great buildings. They want to be where they can eat, live and go out, and all of Those New Buildings On 17th Street and lower Fifth Avenue offer that.”