NEW YORK CITY—If the first quarter is a harbinger of what's to come in Manhattan office leasing for the remainder of the year, 2014 is on pace to exceed 2013's record activity, according to a new report on the first quarter from Avison Young.
High demand for class A office space has boosted rents by an average of $5 per square foot across the borough, with the most notable rent spike having taken place in the Plaza District. And Avison Young's analysis shows healthy growth consistent with the recovering job market, as 18 deals were inked during the first quarter with starting rents in excess of $100 per square foot, compared with only 13 such deals during the same period a year ago. As demand continues to swell for class A Midtown space the trend will continue, Avison Young reports.
“As the unemployment rate in New York City continued to drop during the first quarter, reaching 7.8%, we saw continuous demand for high-quality office space, particularly from the growing technology and media industries,” comments Arthur Mirante, principal and tri-state president. “With new leases accounting for seven of the top 10 transactions during the quarter, Manhattan has shown encouraging signs of growth from a diverse group of new market players, and we've seen the immediate effect on asking rents.”
The most notable increase in asking rents occurred in the Plaza District, where Class A asking rents averaged $130.52 per square foot, up $30 from the previous quarter. Over in Midtown, the class A vacancy rate remained unchanged at 11.2% in the first quarter but several large blocks of space will become available in the near future, including 817,000 square feet at 4 Times Square when Conde Nast moves to One World Trade Center. Additionally, 415,000 square feet at 1633 Broadway became available last quarter in the Times Square neighborhood.
The Sixth Avenue/Rockefeller Center district has seen nearly 100,000 square feet of positive absorption this year, a sizeable improvement from Q1 2013, when the same district registered 175,154 square feet of negative absorption. Recent positive momentum in the area is largely attributable to Mount Sinai Medical Center, which leased 450,000 square feet at 150 E. 42nd St. Other notable transactions include fashion provider New York & Company's new lease to move its headquarters to a 185,000-square-foot space and accounting firm Grant Thornton's lease at 757 Third Ave. for 130,506 square feet, in a relocation from 666 Third Ave.
Meanwhile in Midtown South, a flurry of leasing activity caused the overall vacancy rate to dip to 7.9% from 9% in the previous quarter. The greatest change took place in the SoHo and NoHo districts, where the vacancy rate fell to a paltry 6.1%.
Credit Suisse began the first quarter by signing a deal to restack into 1.2 million square feet on the lower portion of 11 Madison Ave, followed by Sony leasing nearly 550,000 square feet in the building. Additionally, Twitter and IBM's Watson Group inked new leases in the area for 140,000 square feet and 120,000 square feet, respectively. WeWork also signed for a total of 223,000 square feet of space in the quarter.
“Tenants searching for space in Midtown South are faced with significantly fewer options than even a few months ago,” says John Ryan, principal. “Large deals completed in the area during the first quarter have solidified the district's position as the tightest submarket in Manhattan.”
Downtown continues to serve as a value play for cost-conscious tenants. The average class A Downtown rents remain approximately $20 lower per square foot than in the city's other two submarkets. Three major organizations took advantage of the area's attractive pricing in the first quarter: Teach for America leased 172,000 square feet at 25 Broadway; the College Board leased 145,000 square feet at 250 Vesey St. while Revlon is relocating from 237 Park Avenue to 92,000 square feet at One New York Plaza.
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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.
