NEW YORK CITY—Just at the midpoint of 2014, Manhattan office leasing velocity is on pace to exceed the total volume of leases completed in 2013, according to a new report by Avison Young, obtained EXCLUSIVELY by GlobeSt.com.
Average asking rents are stable quarter-over-quarter, the firm reports, although in some submarkets—such as Midtown South—rents are rising steadily, which may lead to an influx of early renewals among tenants looking to lock in today's rents.
“As New York City's economy continues to improve, the demand for Class A office product is driving increased leasing activity throughout the Manhattan office market,” says Avison Young principal and tri-State president Arthur Mirante. “Although overall rents remained stable in the second quarter of 2014, a few historically strong submarkets exhibited rental growth. In Midtown South—the neighborhood of choice for creative companies and tech firms—the Class A vacancy rate hit a record low of 4.4%, down from 7% in the same period in 2013, resulting in asking rents surpassing those in Midtown.”
Adds principal Michael Gottlieb, “With rents in Midtown South projected to rise even further, we expect to see tenants with leases expiring several years out begin to consider early renewals to avoid facing higher rent increases down the road. We already saw this trend starting to take shape in the second quarter.”
Average asking rents remained flat across Manhattan during the second quarter but submarkets with strong momentum, such as the Plaza district, continued to see rents rise. Midtown class A office rental rates have increased every quarter since the second quarter of 2010 and currently stand at $79.66 per square foot.
Midtown South class A asking rents finished the second quarter of 2014 at $80.99 per square foot, up nearly 13% year-over-year from $71.69 per square foot. Downtown asking rents decreased slightly during the second quarter of 2014; large leases with lower asking rents likely drove the modest decline. The average asking rent for Class A Downtown space is $53.11 per square foot but, to date, there have been 26 deals in the submarket with starting rents north of $100 per square foot.
The Class A vacancy rate in Midtown has barely changed quarter-over-quarter, standing at 11.3%. Yet leasing activity in the corridor over the last three months was strong. Blackstone Group renewed and expanded by 38,846 square feet—taking a total of 489,945-square-feet at 345 Park Ave., while White & Case signed a 440,000-square foot lease for new offices at 1221 Avenue of the Americas.
Meanwhile, Downtown's reputation as a value-play for tenants continues to bolster leasing activity in the submarket. During the second quarter, the Durst Organization and the Port Authority of New York and New Jersey lowered the asking rent by 10% to $69 per square foot from $75 per square foot at 1 World Trade Center. Shortly thereafter, three leases were completed at the building.
The landlord at 225 Liberty Street signed two of the largest deals of the year as Time Inc. leased 691,000 square feet, joining media conglomerate Condé Nast in a move from Midtown. Bank of New York also signed a deal for 350,000 square feet in the building, These two deals helped drop the vacancy rate by 130 basis points from the first quarter of 2014 to 12%.
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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.
