The Rich Get Richer: Manhattan Sees Record Number Of Office Leases Crack $100/SF
Manhattan’s office market saw a record number of triple-digit rent leases in 2021, more evidence that the flight-to-quality phenomenon is further boosting the fortunes of the owners of new buildings.
Tenants signed six leases with starting rents of $200 per SF or more in 2021, according to a JLL report, a price point previously seen only a handful of times in the history of New York. The 164 leases signed at $100-plus starting rents were also a New York City record. In 27 of those deals, tenants agreed to pay between $150 and $199 per SF.
While the 3.4M SF leased at over $100 per SF fell short of the all-time mark, the total represents a 60% increase from 2020, compared to the overall leasing market in the city, which grew 32% year-over-year. Deals over $100 per SF accounted for 19% of all office leasing in Manhattan last year, according to JLL.
The growing number of premium leases reflects growing confidence in New York’s office market, according to JLL. JLL Vice Chairman Cynthia Wasserberger, one of the report’s authors, said companies are viewing distinct office space as a way to attract talent in a tight labor market and lure employees back to the office after months of working from home.
“A lot of tenants did deals that put a priority on unique spaces that offer something interesting or different, and those come with higher price tags,” Wasserberger told Bisnow. “A lot of that is trying to draw people back to the office post-Covid and thinking they need to do something more signature and more interesting.”
In addition to factors like views, natural light and amenities, which have always driven rent prices, outdoor spaces have allowed landlords to hit new rent high-water marks. Roughly a third of the square footage leased for more than $100 per SF came with dedicated outdoor amenities, a figure that doesn't include leases signed in buildings with nonexclusive outdoor space.
Tenants are also prioritizing newly built or fully renovated spaces: New construction and redevelopments constituted 54% of top-dollar deals, a total of close to 1.8M SF, according to the JLL data. The importance of building vintage suggests that owners who put money into office properties during the pandemic — even amid record vacancies and uncertainty — are seeing their gamble pay off.
“Investments in these buildings, the creative conversion of space to outdoor space, amenitization, all of that has paid off,” Wasserberger said. “Tenants are reacting positively to those offerings. “
Unlike previous years, 2021’s premium lease volume was not driven by large, headquarters-sized deals — rather, the vast majority of leases were for smaller, boutique spaces. The average $100-plus lease size was just 20,700 SF, with 65% of the deals at less than 15K SF. Only 11 such leases were signed for more than 50K SF. By comparison, 2019 saw an average $100-plus lease size of around 60,700 SF across 145 transactions for a total lease volume of around 8.8M SF.
Tenants across Manhattan also showed a willingness to relocate for unique spaces, with new leases accounting for 75% of $100-plus agreements in 2021. Robust concessions on offer by many landlords may have been a key inducement. According to Wasserberger, owners are regularly offering $100-$120 per SF for tenant improvements, with free rent periods in excess of a year.
Among landlords, Vornado Realty Trust leased the most space above $100 per SF at 832K SF, helped in no small part by the years largest $100-plus transaction: MSG Entertainment’s 428K SF lease at Penn2. SL Green leased the second-most square footage over $100 per SF, a total of 357K SF.
Of note: WeWork was the landlord on over 160K SF of leases worth more than $100 per SF, according to JLL.
New York’s highest starting rent was $220 per SF at 50 Hudson Yards, while the Seagram Building at 375 Park Ave. signed the most premium leases with 14, just ahead of SL Green's One Vanderbilt, which signed 13 leases at over $100 per SF.