Manhattan Office Rents At All-Time High
Manhattan office rents are surpassing all-time highs, eclipsing previous marks set in 2000, a new report indicates.
The average rent hit $53 a square foot in the first three months of 2007, a brokerage firm , Cushman Wakefield, announced yesterday, up 23% compared with a year earlier, and an increase of 5.7% since the fourth quarter of 2006. Surpassing the previous high of $50.92 a square foot from late 2000, the record is part a product of a robust local economy strengthened by a booming financial sector, real estate experts said.
The borough's high commercial rents, which averaged a recordhigh $64.5 for the top-end, or Class A, space come as a result of rising employment levels in the city, coupled with a lack of new, available office space, Cushman Wakefield's New York chief operating officer, Joseph Harbert, said.
"The dynamic in the marketplace is far from equilibrium," Mr. Harbert said at a breakfast event at Michael's in Midtown where the statistics were released. "It's definitely a landlord's market."
While office space rates have been steadily rising for more than a year, an executive vice president at real estate firm Newmark Knight Frank, Mark Weiss, said the construction of millions of square feet of new office space could easily offset current trends.
"If you look historically, it's not a linear progression up or a linear progression down — there's mini peaks and valleys, and we haven't seen a valley in a while," Mr. Weiss said. Although giant projects such as the Bank of America tower near Bryant Park and the New York Times building nearing completion on Eighth Avenue have been successful in filling office space before they open, Mr. Weiss said the space from which the new tenants are leaving generally has not yet been leased to a new tenant.
The current vacancy rate, 5.7% for all of Manhattan, is at its lowest point in six years and down 1% from just last quarter. The vacancy rate downtown has fallen significantly in the past year, dropping from 11.6% in the first quarter of 2006 to the current rate of 7.2%.
The absorption downtown comes as developer Larry Silverstein's 7 World Trade Center tower has gradually been filling up and now is about two-thirds leased, a spokesman for Silverstein Properties said. Yesterday Mr. Silverstein's company announced that anchor-tenant Moody's Corp. agreed to leases for an additional 80,000 square feet in the 52-story building.
Throughout Manhattan, commercial rental activity, or the volume of new leases, is significantly lower than a year ago, according to both Cushman Wakefield and a report by another brokerage firm, CB Richard Ellis.
A vice president at CB Richard Ellis, Simon Wasserberger, said the drop in activity was expected, as 2006 saw an unusually high number of large deals for office space.
"It shouldn't surprise anybody, after the year we had last year, that the first part of this year has been slower," Mr. Wasserberger said.
This lower level of demand for office space is likely to continue, according to is an executive vice president at a commercial real estate firm, Studley, David Goldstein. Studley specializes in representing tenants in commercial transactions.
"There's a little less demand at the top end of the market and that should defuse things a little bit," Mr. Goldstein said. "It should create for a slightly less stressful negotiating for the large block user."
