By Al Barbarino
The Midtown office market had a strong 2011, fueled by a boutique financial services industry that snatched up trophy building space at the high end of the market, according to a recent report from Jones Lang LaSalle.
Vacancy rates in the overall submarket fell by 0.8 percent to 9.3 percent from 2010 to 2011, while year-over-year average asking rents in December jumped 15.8 percent to $98.11 per square foot.
“We’re recovering well off the bottom of the market in terms of the number of deals getting done, but we’re still far from those peak years in 2007 and 2008,” said Cynthia Wasserberger, a managing director at Jones Lang LaSalle.
Stabilized supply and consistent rent increases were limited to the high-end sector of the market, where starting rents are $100 per square foot; that segment of the market is regarded as a way to gauge the condition of the overall boutique office market, the report said.
In 2011 there were 56 such transactions – compared with 19 in 2010 – and two-thirds of them involved tenants in financial services. With an average size around 10,000 square feet, the high-end deals overwhelmingly involved small, powerful boutique users who can justify the high rents.
Hedge funds accounted for 27 of the deals and ten involved private equity firms, while the remaining 19 were completed by real estate foundations and law firms.
At the top of the list was the Seagram Building at 375 Park Avenue, with nine transactions. Next in line were 450 Park Avenue and 9West 57th Street, each with seven deals.
In 2007 and 2008, there were 81 and 91 total deals, respectively, leaving many to wonder whether or not the submarket will ever again reach that level.
“Almost certainly,” Wasserberger said. “The question is when and how long it will take to get back to those levels.”
Landlords will hold firm on pricing in 2012, as supply remains stable and tenants continue to “reap the benefits” of rents that are still below their peaks, she added.
*this article appeared in the Feb. 1, 2012 print edition of Real Estate Weekly
