11/22/08

• Home

• The Magazine

• Archives

• Webcasts

• Advertising

• Job Board

• South Florida

• Subscribe

More tenants scramble for less office space

Smaller deals drove the Manhattan commercial market in April as office tenants leased space before asking rents go any higher. Already at record highs, rents in the borough went up more by May, according to brokerage Colliers ABR. The average asking rent for Manhattan went from $44.23 a square foot in March to $44.73 by the end of April.

The biggest lease inked in April -- for 85,000 square feet -- was the Capital Group's renewal and expansion at 630 Fifth Avenue. Deals like this one, of less than 100,000 square feet, helped drive downward the overall Manhattan vacancy rate to 8.9 percent, Colliers ABR reported, from 9.1 percent in March -- and from nearly 11 percent in April 2005.

This is, of course, good news for landlords, who have responded by pumping up rents to some of their highest post-September 11 numbers. The Class A average asking rent in April was $55.38, Colliers ABR reported, up nearly $1 from March and almost $5, on average, from April 2005. A first-quarter report from commercial brokerage Cushman & Wakefield put Manhattan's average asking rent at $43.20 a foot by the end of March, its highest since late 2002.

For prospective tenants, though, this means a summertime scramble.

"Where a year ago you would've said most people are doing early renewals to protect themselves in the future, you're now in a market where people are doing early leases for new space a year, a year and a half, maybe two years before they can even get physical possession," said Alexander Chudnoff, a senior director at brokerage Cushman & Wakefield who works primarily in the higher-end Plaza commercial district of Midtown. "To be honest, that's just never happened."

Midtown
The overall vacancy rate in Midtown dropped to 7.8 percent in April from 8.1 percent in March, according to Colliers ABR, and from nearly 10 percent the same month the year before. The rate for Class A space made an identical month-to-month drop to 6.9 percent.

The decline in Midtown availability -- absorption was more than 1.4 million square feet in April, Colliers ABR reported -- should be no surprise by now. The traditionally most popular submarket for Manhattan commercial leasing, Midtown has a particularly acute dearth of higher-end office space. Only four newly constructed office buildings are expected to open in the next 18 months: the New York Times headquarters at 620 Eighth Avenue; the Hearst Magazine tower at 959 Eighth Avenue; One Bryant Park, for Bank of America; and 505 Fifth Avenue.

But even this nearly 4.8 million square feet of higher-end space may not stem the tide of rising rents by slaking demand -- half of the Times building will be occupied by the newspaper and Hearst magazines will take up the commercial space in that tower.

The overall Midtown asking rent increased from $52.56 a square foot in March to $53.74 in April. The asking rent for Class A space in April averaged $63.80 a foot, Colliers ABR reported, up more than $1.50, on average, from March.

Midtown South
The vacancy rate in Midtown South stayed essentially the same from March (8.5 percent) through April (8.6 percent), and well below last April's 10.6 percent. For Class B space, the most common in Midtown South, the vacancy rate stayed nearly the same month over month at 10.2 percent.

This tightening rate over the last several months helped spur the overall average asking rents in Midtown South seemingly ever upward in April, from $34.52 a foot, on average, in March to $34.87 in April, Colliers ABR reported. The rent for Class B space spiked the most, from $35.86 a foot to $36.34.

Downtown
The 52-story 7 World Trade Center, the largest new office building in Manhattan, opened officially in late May with only a handful of tenants. Still, its entry into the Downtown commercial scene -- along with the deal struck in April between developer Larry Silverstein and the Port Authority of New York and New Jersey -- focused a lot of attention on the submarket.

Many have speculated for months now that tightening in Midtown and Midtown South could force prospective tenants Downtown, where they'll find generally lower rents and more available space.

Downtown's overall vacancy rate was 12.2 percent in April, slightly lower than March's 12.4 percent, Colliers ABR reported. The overall asking rent in the submarket declined 7 cents, on average, month over month to $36.28 a foot in April; still, that's nearly $6 above the average per square foot figure in April 2005.