Market Narratives: New York Metro - Office - Submarket Trends

Q1 2013 Submarket Trends: New York Metro - Office

The entire area of Manhattan south of 60th Street is considered by area city planners to be a single, multi-node Central Business District (CBD), although there are residential sections within it. Downtown is the original center of the region, and reached its peak before WWII. Subsequently, Midtown has become the primary center, with office development spreading north and west from Grand Central Station after the middle of the 20th Century. Midtown South is an area of lower buildings (by NYC standards) located south of 30th Street.

Midtown West

  • The 35.9-million-square-foot Midtown West submarket has a vacancy rate of 12.3% for the first quarter of 2013 Reis reports. The highest among seven submarkets, and an average asking rent of $62.61 psf.
  • The vacancy rate fell 10 basis points during the quarter on 21,000 square feet of positive net absorption, and is down 100 from a year earlier. The average asking rent slipped a penny and the average effective rent fell two, to $51.64 psf. The year-over-year gains are just 1.1% and 1.3%, respectively.
  • The 1-million-square-foot 250 West 55th Street is expected to complete construction in August 2013.
  • Studley, Inc. reports a 15.5% availability rate, up 90 basis points from the prior quarter, and a $76.13 psf average asking rent, down 0.9%, for its Westside I submarket.
  • This source reports three large first quarter leases in a part of its Westside II submarket that is also in the Reis Midtown West submarket. Kaye Scholer LLP leased 217,000 square feet at 250 W. 55th Street. Microsoft Corporation leased 203,700 square feet at 11 Times Square. And Macy's Inc. renewed and expanded into 197,700 square feet at 1440 Broadway.

Midtown South

  • In the 34.6-million-square-foot Midtown South submarket, Reis reports the vacancy rate is 7.8%, the second lowest among the submarkets and an average asking rent of $46.36 psf.
  • The vacancy rate increased 80 basis points in the first quarter on 277,000 square feet of negative net absorption, bringing the two-quarter total to minus 329,000. However the average asking rent increased 2.3% during the quarter, and the average effective rent rose 2.2% to $38.58 psf. The year-over-year gains are 5.8% and 6.6%, respectively.
  • "Despite a very strong quarter of leasing activity, Midtown South produced 441,000 square feet of overall negative absorption, primarily due to large blocks of space added to the market in buildings such as 90 Fifth Avenue and 330 Hudson Street," according to Cushman & Wakefield. This source put the vacancy rate at 5.9% and the asking average at $51.97 psf.
  • "Midtown South is garnering much of the attention because conditions in Midtown and Lower Manhattan have been lackluster," according to Studley, Inc. "Tenants have ample options, removing the pressure on them to rush their space-use decisions."
  • While some tech and creative sector firms have been priced out of Union Square and the Flatiron District and moved to Lower Manhattan, Penn Plaza, and the Garment District, according to this source, "the movement is more of a trickle than a torrent."
  • "And Partners, a digital design and marketing firm, has jumped ship in favor of a cheaper lease at 121 East 24th Street," according to The Real Deal. "Previously stationed in pricey Chelsea, where the average asking rent is $61.77 psf, And Partners will now occupy a 5,200-square-foot space for $45 psf."
  • Nearly all of Midtown's South's Class A space, according to Studley, Inc., is in three buildings according to this source: 11 Madison Avenue, 101 Avenue of the Americas, and 51 Astor Place, which Reis puts in its South Broadway submarket.

Penn Station

  • For the 26.3-million-square-foot Penn Station submarket, Reis reports a vacancy rate of 7.8% and an average asking rent of $42.90 psf.
  • The vacancy rate decreased 50 basis points during the quarter on 131,000 square feet of positive net absorption, but is up 10 from a year earlier. The average asking rent increased 2.7% during the quarter, with the average effective rent up 2.9% to $35.74 psf. The year-over-year gains are 4.6% and 5.4%, respectively.
  • The 1.7-million-square-foot Hudson Yards South Tower office building at 10th Avenue and 30th Street broke ground in December 2013 for completion in mid-2015. See Special Real Estate Factors for more commentary.
  • In its Westside II submarket, Studley, Inc. reports an availability rate of 9.9%, down 70 basis points over the quarter, and an asking rent of $59.93 psf, down 5.0% from the quarter before.

Plaza

  • The 55.4-million-square-foot Plaza submarket, at the southern edge of Central Park, is the most expensive area in the city according to Reis, with an average asking rent of $89.19 psf. The average asking rent increased 2.4% here in the first quarter, while the average effective rent rose 2.3% to $72.91 psf. The year-over-year gains are 6.1% asking and 6.2% effective.
  • The Plaza District vacancy rate is 10.7%, down 10 basis points during the first quarter and 100 from a year earlier. First quarter net absorption was 56,000 square feet; the six month total is plus 33,000.
  • Studley, Inc. reports an availability rate of 10.5% and an asking rent of $70.05 psf for its Plaza I submarket. In its Plaza II submarket, the firm reports an availability rate of 7.7% and an asking rent of $60.06 psf.
  • At 550 Madison Avenue, according to this source, Sony Corporation of America completed a 798,420-square-foot sales leaseback deal.

Grand Central

  • The 113-million-square-foot Grand Central submarket is Manhattan's largest, according to Reis. This submarket has a vacancy rate of 9.6%, and an average asking rent of $66.06 psf, second highest among the submarkets.
  • The vacancy rate was essentially unchanged during the first quarter, but is down 90 basis points from a year earlier. The average asking rent increased 1.6% during the quarter, and the average effective rent rose 1.5% to $54.47 psf. The year-over-year gains were 3.9% and 3.7%, respectively.
  • The 748,000-square-foot International Gem Center, an office condominium property, is expected to complete construction in June. Occupants will be drawn from adjacent buildings, some of which may become development sites.
  • Comcast Interactive Media purchased a 1.3-million-square-foot office condominium at 30 Rockefeller Center, according to Cushman & Wakefield. The price was $1.4 billion ($1,077 psf).
  • Studley, Inc. reports an availability rate of 15.3% and an asking rent of $63.43 psf for its Grand Central I submarket. In its Grand Central II submarket, the firm reports an availability of 7.5% and an asking rent of $48.44 psf.
  • In the Grand Central submarket, according to Newmark Grubb Knight Frank, "six buildings saw a climb of at least 50,000 square feet in new availability in the past 90 days."

Downtown

  • In the 66.4-million-square-foot Downtown submarket, Reis reports the vacancy rate is 10.8%, highest among the submarkets, and the average asking rent is $43.85 psf.
  • The inventory rebounded in the aftermath of Hurricane Sandy, as did occupancy. The vacancy rate is down 70 basis points over two quarters. Both the average asking rent and the average effective rent increased 1.8% during the first quarter, the latter to $35.96 psf. The year-over-year gains are 4.0% asking and 7.1% effective, the latter the largest increase among the submarkets.
  • The first World Trade Center Tower to complete construction, according to Reis, is the 1.8-million-square-foot Four World Trade Center, due in October. The 2.6-million-square-foot One World Trade Center is projected to open just three months later in January 2014. The respective "lead tenants," according to Cushman & Wakefield, are the City of New York and Conde Nast.
  • During first quarter, according to Studley, Inc, "the only new leases for more than 100,000 square feet were completed Downtown— HarperCollins' lease at 195 Broadway and Transatlantic Reinsurance's lease at 1 Liberty Plaza." But Cushman & Wakefield identifies Brookfield Plaza, the former World Financial Center, as the site of some significant new vacancies in the second quarter.
  • "At Brookfield Place," according to Newmark Grubb Knight Frank, "there is just under 3.1 million square feet of direct availability, while at the two towers under construction at the World Trade Center (WTC), approximately 1.8 million square feet is available."
  • Cushman & Wakefield reports a vacancy rate of 8.0% and an overall weighted average gross rental rate of $40.28 psf for Downtown, including the Reis South Broadway submarket (below).

South Broadway

  • In the adjacent 20.5-million-square-foot South Broadway submarket, which includes Tribeca and the Civic Center, Reis reports a vacancy rate of 7.0%, lowest among the submarkets, and an average asking rent of $43.73 psf.
  • The vacancy rate decreased 20 basis points in the first quarter, and is unchanged from a year earlier. The average asking rent rose 1.2% during the quarter, with the average effective rent up 1.3% $36.32 psf.
  • The 363,207-square-foot 51 Astor Place is expected to complete construction in June 2013. The 418,000-square-foot 330 Hudson Street, also under construction, has a September 2013 completion data. Another building, the 27,100-square-foot 837 Washington in the Meatpacking District, broke ground in November 2012 for completion in early 2014.
  • The building at 51 Astor is a rarity, spec space, according to the New York Observer, and some believe the developer's asking rents of $115 psf are unrealistic. "If you're going to plan a building and you don't start it until a tenant comes walking along, you can be sitting on the dirt for 10 years," according to builder Edward Minskoff who believes the gamble will pay off with patience. He had previously started construction on the World Financial Center on spec, back in the 1980s when such things were common. "Tenants want to see a building," he said. "They want to see reality. They don't want conjecture."