Manhattan Office Rents Continue To Reach New Highs
Manhattan office rents went up again this summer, although large chunks of space hitting the market have pushed up the availability rate in some parts of the borough.
From June 1 to Sept. 30, just over 7M SF of office space was leased in the borough, 4% above the five-year quarterly average, according to CBRE’s report.
This year, 22.2M SF has been leased, a 1% bump over the same period of time last year. Average rents reached nearly $82 per SF, a 2% jump on the quarter before and a new record, CBRE found. The average tenant improvement allowance hit $106 per SF for raw new space, with an average of 14 months free rent.
“The Downtown and Midtown South markets continue to surge as demand from tenants, especially in the tech sector, remains strong,” CBRE Tri-State Director of Research and Analysis Nicole LaRusso said. “Overall, we expect leasing to remain robust for the remainder of 2019, with several large leases expected to close in Midtown.”
Major leases over the quarter included WeWork’s deal to take an enormous spread at 437 Madison Ave., leasing up more than 360K SF in the building. Google also finalized its 1.3M SF at 550 Washington St. during the quarter, the biggest lease of 2019 so far.
The submarkets of Downtown and Midtown South dominated the market throughout the quarter.
More than 2.5M SF worth of leases were signed in Midtown South — more than half of which came from the Google deal. Downtown office landlords signed 1.8M SF worth of leases, which means so far 2019 has been the best year for the area in nearly two decades.
Meanwhile, leasing activity in Midtown slid down 2.9M SF, which was 32% below its five-year quarter average. Negative absorption in that area reached more than 2M SF and availability went up to 11.5% as more than a dozen blocks of space greater than 100K SF hit the market. However, the report notes there are around 3M SF worth of leases in Midtown due to close over the next six months.
The office leasing market in the city has been going from strength the strength over the last few years, though some real estate players have been concerned about landlords heavy use of tenant improvement allowances and large amounts of space that is still being built.
Meanwhile, WeWork, which is the biggest private office tenant in the city, is backing away from some lease negotiations. Many real estate players have said that if the coworking firm withdraws from the market in a significant way, the impact will be more psychological than fundamental.