At year-end 2014, the vacancy rate for Midtown’s trophy building submarket dropped to eight percent from 10.6 percent from the previous year, according to JLL’s Hedge Fund Report.
This decrease mirrors Midtown’s general Class A vacancy rate, which dropped to its lowest level since 2008: 10.7 percent (compared to 11.7 percent in 2013).
The Midtown average trophy asking rents for direct space increased 2.5 percent to $99.58 psf from $97.29 at year-end 2013.
This represents a 23 percent premium over Midtown’s Class A asking rents which average at $80.86 per sq. ft.
Asking rent growth was steepest at the top of the market in the Plaza District, where trophy rents rose 6.5 percent and broke $100 psf for the first time since 2008, reaching $101.28 psf.
As predicted at the end of 2013, asking rents in the high-end market gained strength throughout the course of 2014.
Tenants may want to prepare for similar growth in 2015, particularly on preferred floors in the best buildings.
Tenants can expect the most desirable sector of the market — trophy tower floors (i.e. those above the 25th floor) — to continue to tighten. Vacancy on these trophy tower floors is a mere 4.1 percent, dropping from its five percent vacancy level in 2013.
Through 2014, landlords continued to offer robust concession packages, allowing tenants to offset substantial up-front capital costs associated with building new office space, typically a barrier to relocating.
In 2014, 97 transactions were completed at starting rents of $100 psf or higher. Over the past several years, the number of these $100+ deals has increased consistently and has finally exceeded the 2008 peak of 91 deals.
Despite the ever-increasing number of these high-end deals, it should be noted that they represent a relatively small portion of the total leasing volume in Midtown Manhattan in 2014 (12 percent) – approximately 2.7 million square feet, yet significantly above the one million square feet of top tier deals in 2013.
The average size of transactions that achieved starting rents of at least $100 increased to 28,583 s/f. This number is skewed upwards by several unusually large transactions that occurred in 2014. These three deals all exceeded 350,000 s/f and were early renewal commitments with forward pricing. Excluding these three anomalies, the average size lowers to 16,415 s/f.