The Real Deal: High-end Office Space Leads The Way In First Half of 2013

By Adam Pincus on July 01, 2013.

Manhattan’s office leasing market bumped along in the first half of the year but got a bit of a boost from increases in the number and price per square foot of high-end deals concentrated in the Plaza District.

Through late last month, 28 leasing deals with rents of $100 per square foot and above had been signed — the highest at roughly $200 per square foot. That compares with 23 leasing deals for the same period of 2012, with the highest in the $170-per-square-foot-range, preliminary information from leasing tracking firm CompStak revealed.

The top deals of 2013 include an early renewal last month by investment firm Och-Ziff Capital Management Group, at Sheldon Solow’s 9 West 57th Street, for more than $200 per foot on floors 39 and 40; and a branch of Brazilian lender Banco Itaú, which leased about 10,000 square feet in Boston Properties’ General Motors Building at 767 Fifth Avenue, for about $200 per foot.

The deals eclipse last year’s priciest one: Icahn Enterprises took about 28,000 square feet in the GM Building in the high $170s per foot, information from CompStak showed.

A combination of a modest recovery in the economy and the low inventory of high-end office space is driving up prices, said Compstak’s research director, Noam Shahar.
“The smaller, luxury spaces are harder to come by,” he said.

For Manhattan overall, the average asking rent recovered from a yearlong drop-off to nearly match the level of 2012’s second quarter. The average asking rent was $56.61 per foot, compared with $56.64 for the same period last year, according to preliminary figures from Colliers International, a commercial brokerage.

The availability rate, which measures space available over the next 12 months, was identical in the second quarter of both years — 12.1 percent.

Midtown
Second-quarter asking rents remained far below where they were for the same period last year, and the availability rate ticked up slightly. Both figures, however, showed an improvement over the first quarter.

The average asking rent was $66.09 per square foot in Midtown, a $2.54 per foot decline from 2012’s second quarter but a $1.02 per foot increase from the first quarter.

The availability rate followed a similar pattern: It stood at 12.2 percent for the second quarter of 2012; then it rose, hitting 12.6 percent in the first quarter, before declining to 12.3 percent for the last quarter.

An example of the new leasing activity was at 1001 Sixth Avenue, at 37th Street. Pharmaceutical marketing firm Crossix changed floors and expanded within the 240,000-square-foot building.

Crossix moved from about 5,000 square feet on a portion of the 17th floor, to all of the 12,000 square feet on the fifth floor, which had an asking rent of $45 per foot.

The 10-year lease was signed June 26. Commercial brokerage Savitt Partners represented the tenant. Representing the landlord were James Caseley, an executive managing director at ABS Partners Real Estate, and his colleague, Douglas Regal, a managing director at the company.

“We are seeing absorption along Sixth Avenue from 34th to 42nd [streets], Caseley said, adding that asking rents are creeping up, although the environment remains in the tenant’s favor.

Midtown South
The area’s hot market kept asking rents on their steady march upward last quarter, although a significant amount of space opened up — driving up the availability rate and spurring some landlords to price their product to move.

The largest block of space coming on the market last month was at 61 Ninth Avenue, CoStar Group showed. Newmark Grubb Knight Frank’s Justin DiMare listed 110,128 square feet on floors 4 through 12, for a new development project on the site of Prince Lumber, at the corner of 15th Street. The 12-story Kohn Pederson Fox–designed tower is expected to be ready for occupancy in the first quarter of 2016.

Also hitting the market were floors 11 and 12 at the 350,000-square-foot Masonic Hall at 71 West 23rd Street, at the corner of Sixth Avenue; each floor has 13,000 square feet. The space is occupied by management support services firm Aecom but will be available at the end of this year.

The asking rent is $58 per square foot. Rents in the building have increased about $20 per foot over the past two years — the same as the market overall, according to the Masonic Hall’s representative, Herb Goldberg, commercial manager for brokerage City Connections Realty.

Midtown South’s average asking rent was $51.52 per foot, compared with $43.76 in 2012’s second quarter. The availability rate also increased in that same period, from 8.8 percent to 9.2 percent, the Colliers data showed.

“We tried to price [the Masonic Hall] fairly; we did not shoot for the stars,” Goldberg said, suggesting that other comparable buildings are asking $62 per foot to $65 per foot. His ask is “below market,” Goldberg noted.

“We are interested in a certain type of tenant, and want to get it rented sooner rather than later,” he said.

Downtown
The Downtown market saw a sharp increase in its availability rate, driven in part by more space hitting the market.

One of the larger blocks listed was at the Equitable Building, at 120 Broadway, for floors occupied by the law firm Lester Schwab Katz & Dwyer. CoStar shows 68,000 square feet as available, the 38th floor and part of the 39th floor, although a move-in date was not specified. The law firm did not respond to a request for comment.

The law firm inked a renewal deal in 2007 with an estimated rent of $42.50 per foot, data from CoStar shows.

Over the past year, the average asking rent per foot rose from $45.44 to $45.71, and the availability rate fell to 15.9 percent from 16.7 percent, Colliers data showed.

The higher rents in Midtown and Midtown South are driving new kinds of tenants to Lower Manhattan — far different from the area’s many nonprofits and law and financial services firms.

For example, 44 Wall Street has seen interest from businesses tied to home and fashion, said ABS managing director Keith Lipstein, who represents the landlord.

Lipstein had a fashion eyewear company and an interior design company that makes high-end paints tour the 350,000-square-foot building, although neither inked a deal.

“That is relatively new,” he said.

Regina Glick

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