Manhattan Office Leasing Sets Record, Led by Large DealsDavid M. Levitt
Manhattan office leasing climbed to a record in the fourth quarter, driven by large agreements by companies such as Citigroup Inc. seeking cost-effective real estate, according to brokerage Studley Inc.
Leases were signed for 12.7 million square feet (1.2 million square meters), up from 5.8 million a year earlier, Studley said in a draft report. Citigroup’s 2.6 million-square-foot renewal at 388 and 390 Greenwich St. in lower Manhattan was the largest deal. The three next-biggest transactions also were downtown, a sign that large space users are capitalizing on that area’s lower prices and government incentives, said Steven Coutts, Studley’s vice president for research.
While the leasing numbers were inflated by big deals, the largest and most expensive U.S. office market is still recovering from the blows dealt by the financial meltdown of 2008. Banks and securities firms are seeking to downsize to control costs amid tighter regulation. Growing technology and media companies are filling much of the vacuum, challenging landlords to adapt to a more diverse market, Coutts said.
“Manhattan’s core office-space users -- major banks, law firms and a wide range of professional and business services -- remain focused on containing costs,” Coutts said in an e-mail. “Making space work harder is becoming more widespread.”
Manhattan’s office availability rate, which measures empty space and offices scheduled to become vacant in the next 12 months, was 12.2 percent, unchanged from a year earlier. That indicates the fourth-quarter’s leasing, the highest in Studley records dating to 1995, did little to tighten the market.
The new agreements “ultimately weren’t enough to keep up with additional blocks that banks, law firms and other tenants are giving up due either to consolidation or movement out of the market,” Coutts said. “A couple of new buildings thrown into the mix added to the availability as well.”
The rate reached 13.8 percent in the middle of 2009.
Rents sought by landlords averaged $63.04 a square foot in the fourth quarter, a 10.6 percent jump from the end of 2012.
Midtown rents averaged $72.32 a square foot, up 8 percent in a year. Downtown rents surged 19 percent to $52.27. In the area known as midtown south -- roughly between 30th and Canal streets -- rents averaged $65.72, a 5 percent increase.
Lower-priced space was the most sought after in the fourth quarter and last year, with tenants attracted to downtown and aggressively priced vacancies on Midtown’s Avenue of the Americas, Coutts said. As those spaces were leased, offices that came onto the market tended to be higher priced, boosting average asking rents, he said.
Hines, the Houston-based developer of the 30-story Henry Cobb-designed tower known as 7 Bryant Park, is seeking about $125 a square foot for offices, according to Studley. Boston Properties Inc. also wants more than $100 a square foot at 250 West 55th St., its new 1 million-square-foot tower on Midtown’s west side, the brokerage said.
“We love having the competitive position of being singular -- a new building, in Midtown, adjacent to a very successful public space,” Tommy Craig, head of Hines’s New York office, said in a telephone interview. “The combination we offer of cost per employee and quality per employee we think adds up to more.”
The other three big lower Manhattan leases in the fourth quarter included GroupM’s 516,000 square feet at 3 World Trade Center, a Silverstein Properties Inc. tower that’s in the first stages of construction, and CME Group Inc’s sale and 449,000-square-foot leaseback of the Nymex Building. The law firm Jones Day took 330,000 square feet at Brookfield Place New York, the former World Financial Center, where Brookfield Office Properties Inc. has more than 2 million square feet of former Merrill Lynch & Co. space to rent.
Those deals bode well for lower Manhattan, which has a 14.9 percent availability rate, and a 20.6 percent rate for top-quality Class A offices, Coutts said.
He is projecting “continued momentum” for the World Trade Center and Brookfield Place, as well as Related Co.’s Hudson Yards project on Midtown’s far west side.
“As these projects approach delivery, the concrete advantages they provide will become more tangible,” Coutts said in his e-mail. With the rent differential between downtown and Midtown, “there is a significant upgrade in quality for those moving to lower Manhattan, as well as the potential for incentives that reduce effective rent.”
For the year, Manhattan leasing totaled 34.7 million square feet, the most since 2000. By Studley’s measure, the borough has 432.2 million square feet of offices.