Availability rates are down across the range of Manhattan sub-sectors, including Midtown, where vacancy is at its lowest point since the late summer of 2008. Yet despite the notable demand and climbing prices, space in the heart of NYC is apparently “still reasonable.”
“I still consider Midtown a relative bargain,” said Joe Harbert, president of eastern region for Colliers International, during the company’s second quarter summary breakfast which was held on Tuesday at their 666 Fifth Avenue headquarters.
Midtown’s highest average asking rent before the Great Recession was $92.04 psf in 3Q 2008.
Midtown saw average asking rents rise to $77.93 per s/f, up 2.3 percent from the $76.15 per s/f in the first quarter and up 4.9 percent from $74.29 a s/f a year ago. At $80.23 per s/f, the Class A average rose 2.7 percent, up from $78.12 per s/f the previous quarter, while crossing the $80.00 a s/f threshold for the first time since 2008.
But the climb, driven mainly by the standard FIRE-type tenants that Midtown is known for, is not nearing a dangerous tipping point according to Harbert.
“Are things getting too expensive for people and will people stop renting space? I don’t think so,” Harbert said addressing concerns that rising rents may force some companies to rethink their office leasing needs.
“We’re not even close to the previous peak in Midtown,” he said. “It’s still relatively reasonable for people that want the space.”
While Midtown may still be a bargain as it concludes the healing process post the 2009 recession, the other sub-sections of Manhattan are pulling their weight as well.
Overall, the flagship borough registered 4.31 million s/f of leasing in the second quarter, down 12.3 percent from the 4.91 million sf in the first quarter, but up 0.6 percent from the 4.28 million sf a year ago. However, absorption was a robust positive 2.2 million s/f, up considerably from the negative 425,710 s/f the previous quarter and positive 902,866 s/f a year ago.
Contributing to the 2.2 million s/f — the strongest quarter of positive absorption on record — were leases signed for greater than 100,000 s/f at 919 Third Avenue and 1301 Avenue of the Americas, as well as the 289,000 s/f withdrawn from the market at 7 Bryant Park.
Those mega deals in Midtown teamed with the tightest availability rates in Midtown South history and dropping vacancy in FiDi to keep prices high across the board. But there is still some work to be done to the south.
Harbert expressed concern for the traditional downtown arena, conceding that he was “little worried,” about the sector.
The concern is due to interest that may have previously been focused there which is now being paid to the soon-to-be Hudson Yards.
Other than FiDi, which produced nearly 55 percent of the area’s leasing over the last quarter, the sector was underwhelming.
Despite that, he stressed that not all tenants want the flash of new construction and modern design at upcoming properties.
The Colliers team pointed to “historic highs” for B and C-class rents and credited the diverging desires of tech and TAMI tenants as compared to the typical wants of traditional Finance Insurance and Real Estate firms.
“Firms that are searching for that bricks and mortar space as opposed to steel and glass have driven up the prices on B and C,” said Harbert.