Manhattan Office Rents Rise 5% on Jump in High-End LeasesDavid M. Levitt
Manhattan office rents rose to the highest in more than four years, helped by small firms signing pricier leases, Cushman & Wakefield Inc. reported.
Asking rents averaged $61.81 a square foot at the end of June, up 5 percent from a year earlier and the first time since May 2009 that the average exceeded $60, the brokerage said today in a statement. There have been 36 deals for more than $100 a square foot this year, compared with 35 for all of 2012. Smaller financial companies and foreign banks were behind the surge, said Melissa Bazar, an executive director at the brokerage.
“The boutique guys are making money again. There’s more confidence with the financial boutique firms,” she said at a briefing for reporters in Midtown.
Manhattan’s office market is returning to health almost five years after the credit crisis caused leasing to stall and rents to plummet more than 26 percent between mid-2008 and late 2010. Demand has been growing among technology and media companies along with smaller securities firms, while the European debt crisis and concerns about regulatory changes caused larger financial firms “to basically go on hold,” said Kenneth McCarthy, chief economist at Cushman.
The larger banks probably will return to growth in the next year as the economy strengthens, said McCarthy, who projects a 3 percent to 3.5 percent increase in U.S. gross domestic product for 2014.
“Today we have about 3,000 fewer jobs in financial services in New York City than we did in August of 2011,” he said at the briefing. “As the national economy picks up, that’ll start to turn around a little bit, and the financial-services firms will start to hire more aggressively.”
Manhattan is the only U.S. office market where space leases for more than $100 a square foot, according to Cushman. All three major submarkets -- Midtown, midtown south and lower Manhattan -- had an increase in leasing compared with a year earlier, the brokerage reported.
The boroughwide office vacancy rate rose to 10.4 percent from 9 percent a year earlier, driven largely by the completion of two new office towers in Midtown: Boston Properties Inc.’s 250 W. 55th St. and Extell Development Co.’s International Gem Tower on West 46th Street.
Och-Ziff Capital Management Group LLC, the hedge-fund manager run by Daniel Och, had one of the biggest leases in the second quarter. The firm took 95,200 square feet (8,800 square meters) in a renewal and expansion at 9 W. 57th St., a tower that overlooks Central Park, according to a report by Cassidy Turley, a competing brokerage. Och-Ziff in May reported first-quarter earnings that more than doubled on higher management and performance fees.
Jonathan Gasthalter, a spokesman for Och-Ziff with Sard Verbinnen & Co., declined to comment on the lease.
Two of New York’s largest banks, Citigroup Inc. and Credit Suisse Group AG, are in the market for new offices and both are expected to reduce their space, said Ron Lo Russo, president of Cushman’s New York tri-state region.
Citigroup is continuing “to consolidate its real estate footprint in New York to achieve greater operating efficiencies,” Mark Costiglio, a spokesman, said in an e-mail.
Credit Suisse continues to explore its leasing options, according to Marcy Frank, a bank spokeswoman.
While banks are cutting back, technology, advertising and media companies are expanding, Lo Russo said. Among those industries, “we’re seeing new tenants in the marketplace, new companies in creation, and moves from outside of the New York market to New York. So what we’re lacking in one industry, we’re making up in another with growth,” he said.
Class A office rents in midtown south were higher than those in Midtown for the first time because of increased demand by media and technology companies, said Jamie Katcher, a Cushman broker. Rents for top-tier offices averaged $75.63 a square foot in midtown south and $73.63 in Midtown. Only about a quarter of midtown south’s offices are considered class A, compared with about three-quarters for Midtown, according to Cushman.
Technology and media firms also have become more prominent in once-bank-dominated lower Manhattan, where they make up 20 percent of office tenants, according to Cushman. Financial companies rented about 7 percent of downtown office space at the end of June, down from about a third in 2003, Cushman said.