The latest round of market reports showed New York City offices having enduring appeal, with leasing activity and rental rates flirting with record highs.
The figures are now being corroborated by rosy reporting during the latest earnings calls of some of the city’s largest office landlords. Executives continue to point to strong results in spite of the looming risk of oversupply.
“We continue to see strong tenant demand for our value price point and well-located quality buildings,” said John Kessler, the president and COO of Empire State Realty Trust.
During the third quarter, ESRT, which owns the Empire State Building and 250 West 57th Street, completed 51 new and renewal leases. This amounts to 349,000 s/f of total leasing, 264,000 s/f of which was in the Manhattan area.
The figures were buoyed by three large deals. These include the Michael J. Fox Foundation’s 86,500 s/f lease at 11 West 33rd Street, outdoor advertising firm JCDecaux’s 46,500 s/f lease at the Empire State Building and analytics firm Sisense’s 24,200 s/f lease at 1359 Broadway. ESRT’s flagship property, the Empire State Building, is also now 90.1 percent leased.
In response to a question about a slowdown in office sub-markets, Tom Durels, ESRT’s executive vice president and director of leasing and operations, pointed to the deals as evidence of a healthy leasing environment.
“The major leases that we did in Manhattan… I think are a sign of the market that we are seeing in our buildings in our sub-markets. So I can point to just the most recent activity and the recent quarter as an indication of the market that we’re experiencing,” he said.
Meanwhile, Vornado Realty Trust, which has Two Penn Plaza and 330 Madison Avenue in its portfolio, was equally optimistic, shrugging off a modest increase in office vacancies.
“Most of the brokerage houses have reported modestly increasing space availability levels both for the quarter and the year-to-date of about 50 basis points. No big deal. Asking rents remain at or near record levels, and leasing activity for the first nine months at over 27 million square feet is up about 4% from last year and on par with 10 year averages,” said David Greenbaum, the president of the company’s New York division.
During the third quarter, the company leased 335,000 s/f at average starting rents of $68.11. The company closed 40 transactions over the period, with about 40 percent at its Penn Plaza project on Seventh Avenue. The company’s biggest deals include MSG’s 325,000 renewal lease at 2 Penn Plaza and Amazon’s 470,000 lease at 7 West 34th Street.
“We have continued to see good leasing activity in the city. In fact above trends from last year and on average basically with kind of 10-year trends. In terms of rents we have can continue to see rents remain stable,” Greenbaum added.
Greenbaum’s comments align with recent market reports. According to data from Colliers International, leasing activity in Manhattan is 13.8 percent higher than the 10-year average in the city. Asking rents also increased to a record $73.85 per square foot during the third quarter.
However, the market faces a possible oversupply with 10 million square feet of office space coming online by 2017. That total is the highest over the past three decades.