By Dan Orlando
While several factors could eventually generate a notable plateau in the strength of Manhattan’s surging office market, Colliers International is confident that startup tenants allowing employees to work remotely will not be one of them.
“That was the latest fad about five or six years ago,” said vice chairman Bob Tunis during the company’s first quarter recap breakfast on Tuesday. “That ship has sailed.”
Tunis said that although technology has made physical presence in an office less necessary on paper, from a practical standpoint, many of the startups that he’s worked with would need to greatly alter their core philosophies and strategies in order to accommodate remote team members.
“They never really experimented with that concept and part of the reason is that collaboration is their rule,” Tunis said.
He noted that even newer companies, who presumably have tighter budgets, can afford a respectable amount of space in Manhattan.
“They have smaller footprints because they want people close together and they can pay these huge numbers. It actually equates because their rule of thumb is 150 s/f per person. Where (the ratio for) many of these older corporations was over 200 s/f.”
“Whatever they save in rent, they lose in terms of their business plan,” Tunis added.
If Tunis is correct, smaller tenants will need to continue to weather climbing rental rates for the foreseeable future.
While Manhattan saw an overall blow to absorption on the rental side, that falter is credited to large blocks of space entering the market place.
In the end, the overall Manhattan asking rent rose for the eighth consecutive quarter and hit $67.62 per sf.
Colliers describes the appetite for office properties in the borough as “unabated,” pointing to the quarter’s achievement of record high marks for average price psf. An average property in Midtown runs $1,280 per sf, $1,077 per sf in Midtown South, and $970 per sf in Manhattan overall.
As those numbers rise, Colliers expects rental prices to follow suit as investors have steeper hills of shelled out capital to climb.
“The Manhattan office market experienced a steady first quarter of 2015, with the dual impact of new and renovated space being released into the market simultaneous to record-breaking asking rents somewhat tempering activity,” said Joseph Harbert, eastern region president for Colliers.
“But demand for space is healthy across the city. It is possible that we are experiencing a flywheel effect from a robust fourth quarter of 2014, but there is potential for a strong year ahead.”
