The Real Deal: Office space availability rises as landlords chase higher rents

By Adam Pincus on March 01, 2015.
New product put on the market with an eye toward capturing broad rent increases boosted the availability rate across Manhattan last month. It was the first time in nearly a year availability rose in all three of the borough’s office leasing submarkets, information from commercial brokerage Colliers International showed.

None of the new listings were blockbuster spaces; they were mid-sized blocks spread around Manhattan, for example at 437 Madison Avenue in Midtown, at 50 West 23rd Street in Midtown South and at 200 Vesey Street in Lower Manhattan, the Colliers data showed.

“We see opportunity to create value as we continue our strategy to consolidate, vacate and redevelop tenant spaces in order to lease to better quality tenants at higher rents throughout our Manhattan portfolio,” said Anthony Malkin, CEO of the real estate investment trust Empire State Realty Trust, during his firm’s fourth quarter earnings call.

The new space that hit the market drove the availability rate up to 10.5 percent last month, a bump of 0.3 points from 10.2 percent in January, the Colliers figures showed.

The William Kaufman Organization added five full floors at 437 Madison Avenue to the market. The asking rent for most of the building is $100 per square foot or more, a rate above the overall market average. Such new availabilities above the average asking rent drive overall rent statistics higher.

At the highest floor on the market, the 34th, the asking rent is $108 per foot, said Michael Lenchner, director of leasing for Sage Realty, which manages William Kaufman buildings. A JLL team is also representing the building.

“We held the floors off the market,” Lenchner said, while a $60 million building upgrade was completed. “This is the first time the building is asking more than $100 per foot.” That’s far above Manhattan’s average asking rent last month, which was $67.50 per square foot, up 58 cents per foot from January, according to Colliers. Meanwhile, leasing activity fell from 3.1 million square feet in January to 2.1 million in February, the preliminary statistics from Colliers showed.

Midtown

A private equity fund involved in the aerospace and defense industries inked one of the most expensive office leases completed over the past 12 months in Manhattan. Veritas Capital Fund Management signed a deal for about $180 per square foot, taking 15,000 feet on the 9th floor of Sheldon Solow’s 9 West 57th Street, in the Plaza District, information from leasing database CompStak showed.

Veritas, now located at 590 Madison Avenue, did not respond to a request for comment.

Even as that super-pricey deal was being done, tenants looking for more modest space in other portions of Midtown were having trouble finding product, some brokers said.
“Office leasing has continued to stay strong, said Robert Kaplan, managing director of leasing at Hidrock Realty, who focuses on Herald Square and the Garment District. There, “for great space between 500 and 2,500 square feet, it’s slim pickings.”

For Midtown, the deal volume declined sharply, to 1 million square feet, from 1.9 million feet in January, while the availability rate rose to 11.1 percent from 10.8 percent during the same time, Colliers data showed.

Even so, the average asking rent rose to $76.22 per square foot, up $1.05 per foot from January.

Midtown South Even though brokers say rising prices are scaring away some technology and media firms from the tight market in Midtown South, the so-called TAMI sector continues to sign deals in the area.

Last month, the digital marketing firm Amobee, which focuses on mobile platforms, signed a 3.5-year lease for 12,250 square feet for the 10th floor of 162 Fifth Avenue, a 150,000-square-foot building at 21st Street in the Flatiron District, CompStak data showed. The firm is relocating from 155 Fifth Avenue, across the street.

James Caseley, an executive managing director at ABS Partners Real Estate, represented 162 Fifth. He declined to comment, and the tenant did not respond to a request for comment.

The overall leasing activity in the submarket was far lower last month than either January or February a year ago. Last month, tenants inked deals for about 475,000 square feet of space, which was 47 percent behind the 899,000 square feet taken in January. But both those were far behind the 2 million square feet signed in February 2014, a particularly active month.

Colliers figures also showed the average asking rent rose slightly in Midtown South, rising by 6 cents per foot to $61.65 per foot. At the same time, the availability rate rose by 0.2 points to 7.9 percent.

Downtown

A leasing team at 140 Broadway completed two deals recently, one for a marketing agency called the Zeno Group, which took 12,000 square feet on the 39th floor for 10 years in the high $50s per square foot, CompStak data showed. The firm is leaving Midtown South.

An architecture firm, NBBJ, is moving to the building as well, but was already in Lower Manhattan. The Seattle-based company has offices around the world, and is moving from 2 Rector Street. Their new lease for 20,120 square feet, for 10 years, was done in the mid-$50s.

The leasing team including Robert Constable, Willard Overlook and Louis D’Avanzo represented the landlord of 140 Broadway, the German investment firm Union Investment Real Estate.

The rents in 140 Broadway are close to the submarket’s asking rents last month. In February, the asking rent in Lower Manhattan was $54.74 per square foot, up $1.04 per foot from January, the Colliers data showed.

The availability rate Downtown rose the most of any market, up by 0.6 points to 13.1 percent. But at the same time, the market’s leasing activity was far higher than January, driven in large measure by WeWork. The shared office space provider inked a deal for 240,000 square feet at 85 Broad Street.

Constable has more space available at 140 Broadway, but said the tower is getting plenty of attention.

“We get anywhere between eight and 20 tours a week in the building, because we can [offer from] 1,500 square feet to a block of 100,000. We have a wide range of availabilities,” he said. “We have activity on very high floors with rents starting with a ‘6.’”

Correction: The original version of this article misstated the William Kaufman Organization name.

Regina Glick

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