12/02/08

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Manhattan commercial rents reach record heights

Source: Colliers ABR

Office rents hit an all-time high in October, with the greatest jump in rents recorded in the last 15 years.

Average commercial rents for Manhattan Class A office space set a new record, ticking up 4.8 percent on the month to $63.26 per square foot, according to numbers provided by brokerage Colliers ABR.

The new high bests a previous record of $63.26 set in April of 2001 and shows a 4.8 percent climb over September, which is the largest month-over-month rent hike since 1991.

Vacancy rates also fell in commercial buildings island-wide, dropping to 7.8 percent in October from 8.1 percent the previous month. Class A space is particularly hard to find. Vacancy rates for those properties dropped to 6.5 percent from 6.8 percent in September, its lowest figure since July 2001.

"There's simply a lack of liquidity in the market right now and it's leading to higher rents," said Matthew Astrachan, vice president of CB Richard Ellis. "A year ago, you had nine or 10 blocks larger than 200,000 square feet [available for lease]. Now, you have two.

"We've seen a 25 percent spike in rents citywide over the past year, and I'd say that 20 percent of that has happened over the past six months," he added.

Vacancy rates could ease a bit soon.

Colliers reports that seven blocks of space in the 100,000- to 300,000-square-foot range will become available over the next several months as some major tenants relocate. However, if the economy remains strong, these properties should go to lease quickly.

Midtown
The average asking rent for Class A space in Midtown rocketed up 5.2 percent in October to $73.95 per square foot -- up from $70.30 a foot in September -- according to Colliers. This high average was helped, no doubt, by the stunningly high rents in the Plaza District submarket, where rents jumped 8.8 percent on the month to $88.45.

"That's no surprise," said Astrachan of the Plaza District rents. "Those properties have always commanded the highest rates in any market cycle in New York and the rent in some buildings there is approaching $170 a foot."

Class A vacancy rates also dropped in Midtown as a whole to 5.9 percent, its lowest level since March of 2001, when the vacancy rent was 5 percent.

Midtown South
The numbers from Colliers show a flat Midtown South market, where they say the overall vacancy rate held steady at 8.2 percent.

Other brokerages have a more positive take on what's been happening recently.

Numbers from CBRE show a vacancy rate much lower than the Colliers' figure, at 5 percent. The brokerage found that Midtown South leasing totaled 520,000 square feet in October, or 30 percent ahead of the market's 400,000-square-feet, five-year monthly average.

CBRE credited strong activity in submarkets Madison Square and Chelsea, where leasing numbers were twice their average. For his part, Newmark Knight Frank executive managing director Peter Kozel agrees with the CBRE numbers.

"Midtown South picked up steam this month," Kozel said. "Plenty of submarkets had availability rates under 5 percent. That means the actual vacancy rates could be as low as 2.5 percent."

Perhaps explaining the weaker numbers from Colliers was a re-measurement at 350 Fifth Avenue, better known as the Empire State Building, which technically caused availability and vacancy rates there to increase. For all they disagree on, however, both Colliers and CBRE had similar rent numbers for the neighborhoods. Colliers puts the average at $37.18 a square foot and CBRE puts the average at $39.63.

Downtown
The numbers from Colliers and CBRE were also close Downtown, with Colliers pegging the average rents in the neighborhood at $40.12 and CBRE reporting $40.22, up in both cases over last month.

Leasing activity was light, however. After seeing over 1 million square feet leased in both August and September, just 320,000 square feet moved in October. That's a full 35 percent lower than Downtown's 490,000 square foot, five-year monthly average, CBRE reports.

If one takes a longer view, however, the numbers are still strong. Year to date, 5.73 million square feet have leased, which puts Downtown 68 percent ahead of last year's pace.

"The Downtown market remains softer, but that's changing quickly," said Astrachan. "The space crunch is such that the market for properties, especially Class A, is very strong in just about every submarket."