The Real Deal: Small Office Deals Thrive As Pricey Space Sits

By Adam Pincus on October 01, 2013.
Strong activity in smaller and mid-sized Manhattan office deals, combined with little new supply, helped firm up the Manhattan commercial leasing market during the third quarter.

In addition to the improved leasing activity, asking rents rose 4 percent for Manhattan overall — to $59.14 per foot last month (at the end of the third quarter) from $56.61 per foot in June (at the end of the second quarter), according to data from commercial firm Colliers International. Meanwhile, the overall availability rate, which measures space available now or over the next year, fell by 0.6 points, to 11.5 percent.

But those increased asking rents are a little deceiving.

Colliers’ Chief Economist Peter Kozel attributed the rise to the fact that moderately priced office space has been getting snapped up, while more expensive listings have not. Market statistics reflect these higher asking rents.
“We have had a lot of inexpensive space leased in the last two quarters … at very competitive rents,” Kozel said. “The market is getting more expensive because of the space that is remaining.”

Data from CoStar Group backs that up. It shows some of the most expensive buildings in the city with large blocks of space available.

For example, Solow Realty & Development’s 9 West 57th Street has more than 500,000 square feet listed as available — about 41 percent of the Plaza District building.

Midtown
A small block of pricey Midtown space hit the market last month in another Plaza District tower, 527 Madison Avenue, helping to drive up asking rents.

The average asking rent for Midtown last month was $69.36 per square foot, up a significant $3.27 per foot over the June figure, the Colliers figures show. At the same time, the availability rate was down by 0.7 points, to 11.6 percent.

The financial firm W.P. Stewart & Company — which is relocating to an undisclosed location within Midtown — put floors 12, 20, 21 and 24 at their current building, 527 Madison, on the sublease market. (The 20th and 21st floors feature a connecting spiral stairway.) While the asking rent was not given, CoStar shows that in 2010 one tenant there was paying $85 a square foot. Given the improved market conditions, rents are likely higher there now.

The roughly 29,000 square feet of space at the 237,000-square-foot building, which is owned by Japanese firm Mitsui Fudosan America, was listed by Transwestern.

Lindsay Ornstein, a principal in Transwestern’s New York office, said late last month that she had a tenant looking to take two floors.

“We have had a lot of interest from financial services firms and real estate investment firms,” she said. The lease runs through December 2017.

Midtown South
Technology firms have been driving rents higher in Midtown South for a while now, but a new medical research facility can now take some of the credit, too.

Indeed, 217,000 square feet was listed last month at the West Tower of the Alexandria Center for Life Sciences, a 421,000-square-foot, under-construction research building on 29th Street between First Avenue and the East River, according to CoStar. The asking rent was not available.

Alexandria Real Estate Equities, the real estate investment trust that’s building the tower, tapped Cushman & Wakefield’s William Hartman and Matthias Li to handle the listing. The Cushman brokers forwarded questions to Alexandria, which did not respond by press time.

The drug maker Roche announced last year that it would take 91,000 square feet in the building, which is scheduled to be completed by the end of the year.

The tower is the second in Alexandria’s life science center. The adjacent East Tower opened in 2010.

Marisa Manley, president of the Midtown brokerage Healthcare Real Estate Advisors, said these types of medical research buildings are typically extremely specialized and don’t compete with normal office space.

But demand for medical space is on the rise, which is impacting the overall market, she said.

“We are seeing more of the plain vanilla conversion of office space into medical space,” to the north of the Alexandria towers, said Manley, who is not involved in the project.

Asking rents in Midtown South (for all varieties of office space) rose $1.56 per square foot to $53.08 between the end of the second and third quarters, according to the Colliers statistics. The availability rate during that period declined by 0.1 point, to 9.1 percent.

Downtown
The Downtown office market tightened substantially last month.

One firm that added to that tightening was the nonprofit Village Care of New York, which assists the elderly and people living with HIV.
The organization — which was previously headquartered in Midtown South — signed a 15-year lease last quarter with Silverstein Properties for space on the 28th floor at 120 Broadway, according to information from commercial leasing data firm CompStak.

William Montana, a managing director at Studley, represented the tenant. Neither Montana nor Village Care responded to requests for comment by press time.

Downtown’s overall availability rate fell substantially between the second and third quarters, tightening by 1.2 points, to 14.7 percent, the Colliers figures showed.

At the same time, the average asking rent rose by $1.28 per foot, to $47.48 per foot.

Regina Glick

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