NEW YORK CITY-With leasing velocity moving at a rapid clip, transportation hubs and new, efficient buildings under construction as well as the ensuing rise of interest from investment capital, Downtown was the star of the fourth quarter of 2013, according to CBRE. Underscoring its point, the firm held its quarterly briefing—traditionally done at its Midtown offices—at the recently opened 4 World Trade Center, where CBRE is the leasing agent.
Manhattan's remaining submarkets also performed well, with both Midtown and Midtown South beating their five-year quarterly averages, noted Kyle Schoppmann, senior managing director. Midtown leasing activity reached 4.05 million square feet, topping the market's five-year quarterly average of 3.61 million square feet. Renewals and expansions accounted for four of Q4 top five deals, led by Metro-North Railroad's 266,000-square-foot renewal-and-expansion deal. Midtown's average asking rent per square foot rose $2.66, or 4%, during the quarter to $72.85. Year-over-year, the average was up $5.05 per square foot, or 7%.
Meanwhile, Midtown South logged 1.13 million square feet of leasing activity during Q4, outpacing the previous quarter's 960,000 square feet of leasing by 17% and the market's five-year quarterly average of 1.04 million square feet by 9%. Citigroup's 2.55 million-square-foot blockbuster renewal deal at 388 and 390 Greenwich Street in December was the largest lease completed in Manhattan during 2013.
Midtown South's average asking rent posted a net increase of $0.37 during the quarter, ending 2013 at a new record-high of $64.58 per square foot. At year's end, Midtown South's average asking rent represented 89% of Midtown's average. By comparison, the differential between the two markets was 91% at the end of Q3 2013, and 81% in Q4 2012.
Still, activity Downtown was so impressive, CBRE executives held a panel discussion on the area during Monday's press conference. The submarket posted its 11th straight quarter of above-average leasing, with 1.71 million square feet of activity, outperforming the market's five-year quarterly average of 1.09 million square feet by an astounding 58%. This was Downtown's strongest quarter of leasing activity since Q2 2011. Yet the average asking rent ended the year at $46.47.
“Downtown remains a highly attractive market in pricing compared to Midtown and Midtown South, but it has already reached critical mass in the delivery of quality new office space, as well as in amenities such as retail and restaurants, said Bruce Surry, EVP. “With the completion of the Fulton Street Transit Center this year and the World Trade Center Transportation Hub in 2015, Downtown also will have delivered unrivaled mass transportation options for workers, residents and tourists.“
Added Adam Foster, SVP, “Employers demand modern, efficient space, and while New York is an old city, when you look at Downtown, 48% of the building stock is post-1980, which is important. Employers also look for community, and 35% of the people who work down here walk to work.
Producing a long list of firms that have announced plans to move Downtown—including Conde Nast, Jones Day, Group M and HarperCollins—Surry noted that many come from industries which previously only leased in Midtown, and that all of the companies have signed leases for 15-years and up. “These companies are making significant contributions to Downtown and are part of the area's transformation.
The high success of the office leasing market in Manhattan's lower reaches prompted investment dollars to flow into the area, and will continue to do so, said Foster and Surry. “From a capital standpoint, Downtown has become the 'It Girl,' Foster declared. “Investors like to follow momentum.
Added Surry, “It brought in capital that's never invested in the area before, said Surry, noting the addition into the market of Fosun International when it purchased One Chase Manhattan Plaza.
He also looked out toward the future. “Fosun has indicated it's not finished buying; the company has made a clear statement that 1 Chase Plaza is just the beginning. Whether you're talking about Broad St., Water or another part of Downtown, the confidence is here. The capital in the area will be higher than anything we've ever seen before. There's a tremendous pipeline of leasing too.
Foster predicted a rise in prices once One World Trade Center comes online, but expects to still see super-healthy activity. “Supply and amenities are going to drive demand, so watch for more of the same type of performance Downtown.
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
