By Rey Mashayekhi on May 01, 2015.
The Midtown office market performed strongly in the first quarter of 2015, with effective rents for Class A space increasing 5.1 percent from the previous quarter while Midtown South effective rents dropped after three consecutive quarters of growth.
The average effective rent – the rent paid adjusted for concessions such as free rent and tenant improvements – for Class A space in Midtown increased $3.67 to $72.44 per square foot in the first quarter, according to information provided exclusively to The Real Deal by real estate data firm CompStak.
The market for Class B space in Midtown did drop $1.95 per square foot to about $50 per square foot, ending four consecutive quarters of positive growth. Average concessions ratios in the Midtown market increased to nearly 10 percent of total lease value – the highest ratios in three years, according to CompStak.
Renewals, including Paris-based advertising agency Publicis’ 500,000-square-foot renewal/expansion at 1675 Broadway, comprised 47 percent of leasing activity in the quarter. Other notable leases in the Midtown market included law firm Kirkland & Ellis’ 31,000-square-foot extension at 601 Lexington Avenue and data provider Markit’s 139,000-square-foot lease at 5 Manhattan West in Hudson Yards.
The Midtown South market cooled off, for a change, in the first quarter after three consecutive quarters of positive growth – dipping to an effective rent of under $60 per square foot. The decline was attributed to fluctuations in availability that resulted in fewer higher-end deals being signed – though CompStak noted that “all signs point to this being only a temporary hitch for the hottest submarket in Manhattan.”
New leases comprised more than 71 percent of total Midtown South lease activity in the quarter, in line with the three-year average, while median effective rent – a measure less sensitive to top-tier transactions – held above $60 per square foot and posted positive quarter-on-quarter growth. Average concession values in the market were unchanged at 9 percent of total lease values.
The Downtown office market saw its fourth consecutive quarter of growth in average effective rents, which rose 3.7 percent to $41.99 per square foot. The increase was attributed to “momentum in the Financial District,” with Class B space approaching $40 per square foot.
The ratio of new leases to renewals for the Downtown market continued to grow, with new leasing activity comprising 84 percent of transactions in the quarter thanks to deals like WeWork’s 240,000-square-foot lease at 85 Broad Street. Concession value ratios are also “signaling bullish market conditions,” according to CompStak, falling to 9.6 percent of total lease value.
The data firm also noted a precipitous drop in FIRE (Financial Insurance and Real Estate) tenants in the Financial District; such tenants accounted for less than 15 percent of the total number of leases signed over the past year, down from more than 25 percent as recently as 2011.