NYC Midtown South Office-Vacancy Rate Rises as Rents Jump
The office-vacancy rate in New York’s midtown south climbed for a fourth straight quarter as rents rose faster than some of the area’s technology and media tenants could pay, Cushman & Wakefield reported.
The rate reached 7.1 percent at the end of 2012, up from a low point of 5.9 percent in the first quarter, the New York-based real estate services firm said today in a statement. The increase indicates the market is softening in an area that has the lowest vacancy rate in the U.S.
“It’s still the tightest market in the country, but I think that the bloom is off the rose,” Kenneth McCarthy, chief economist for Cushman, said in a telephone interview. “It’s still the preferred location, but cost really does have an impact on space decisions.”
Office demand by so-called creative firms in midtown south, the area roughly between 30th and Canal streets, has bolstered the broader Manhattan market as more traditional tenants, chiefly financial firms, cut back amid concerns about possible tax increases and stricter regulation. That uncertainty is likely to continue this year, leading to slow growth, McCarthy said.
Manhattan’s fourth-quarter vacancy rate was 9.4 percent, down from 9.6 percent in the third quarter and up from 9.1 percent a year earlier. Average asking rents rose to $59.54 a square foot, up from $58.83 in the previous three months and $57.23 a year earlier.
In midtown south, landlords sought an average of $49.69 a square foot in the fourth quarter, an 8.3 percent jump from a year earlier, according to Cushman. The average was $49.12 in the previous three months.
“Given the explosion in asking rents, tenants have started looking for value beyond the traditional boundaries of midtown south,” Andrew Sachs, an executive director at Cushman, said in the statement.
Many media and technology firms priced out of midtown south are going downtown, where rents are lower and available space in older buildings is more abundant, McCarthy said. Office availability in lower Manhattan is rising as new towers at the World Trade Center near completion, and Brookfield Office Properties Inc. (BPO)’s World Financial Center leases to Bank of America approach expiration.
One example McCarthy cited was Nielsen Holdings NV (NLSN), the media-research firm best known for its television ratings, which in October agreed to move its New York offices from the East Village to 85 Broad St., the former Goldman Sachs headquarters in the financial district.
Nielsen on Dec. 31 vacated 157,000 square feet at 770 Broadway, which is owned by Vornado Realty Trust (VNO), and plans to leave its remaining 82,000 square feet in April, according to data from CoStar Group Inc. (CSGP), a Washington-based research firm. Nielsen is taking 116,000 square feet at 85 Broad St., which is owned by MetLife Inc. (MET)
Kristie Bouryal, a Nielsen spokeswoman in New York, didn’t return a voice mail seeking comment on the move.
Asking rents downtown declined to $39.58 a square foot in the fourth quarter from $39.88 a year earlier.
In Midtown, the largest and most expensive U.S. office market, the fourth-quarter vacancy rate was 10.3 percent, up from 9.6 percent a year earlier. Rents climbed to $67.36 a square foot from $65.42.
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