By: David M. Levitt | Bloomberg
Lower Manhattan office leasing surged in the first half, pushing down vacancies as tenants took advantage of some of the borough’s lowest rents, Cushman & Wakefield Inc. reported.
Agreements were signed for 3.7 million square feet (344,000 square meters) downtown in the year through June, up 31 percent from the same period a year earlier, the New York-based brokerage said today. The vacancy rate dropped to 10 percent from 12.2 percent at the end of 2013, in part because of large leases at Brookfield Place, where Time Inc. (TIME) and Bank of New York Mellon Corp. took more than a million square feet combined.
Leasing in lower Manhattan gained momentum as “sticker shock” in the midtown south market drove media and technology tenants to seek cheaper alternatives to the vintage buildings in that area, roughly between 30th and Canal streets, according to Donald Noland, regional research director at Cushman. For downtown, it was the strongest first half in the last 12 years, except for 2011, when Conde Nast Publications Inc. agreed to rent about 1 million square feet at 1 World Trade Center.
“We’re really seeing some strong growth numbers,” Noland said.
Landlords were offering space in older, less well-appointed office buildings in midtown south -- which includes such neighborhoods as the Flatiron District, Chelsea and Soho -- at about $63 a square foot, he said. That compares with about $40 a square foot for similar properties in lower Manhattan. Costs downtown will rise as vacancies fall further, Noland said.
Magazine publisher Time Inc. last month decided to relocate its headquarters from Midtown, taking 700,000 square feet at 225 Liberty St. in Brookfield Place. BNY Mellon, the world’s biggest custody bank, agreed to rent about 350,000 square feet in the same building in the complex, owned by Brookfield Property Partners LP. (BPY) Financial terms of the leases weren’t disclosed.
Downtown’s rebound may help developer Larry Silverstein as he tries to finance the construction of 3 World Trade Center. The tower at 1 World Trade Center is also seeking tenants for about 1.3 million square feet of space as it nears completion later this year.
For all of Manhattan, office tenants took 16.7 million square feet in the first half, up 35 percent from the same period a year earlier. In Midtown, the largest and most expensive U.S. office market, leasing rose 23 percent. Deals there included law firm White & Case LLP’s agreement for 440,000 square feet at 1221 Avenue of the Americas, and money manager Neuberger Berman Group LLC’s 355,000-square-foot lease at 1290 Avenue of the Americas.
Companies want “to lock in deals before we see another rent spike,” Bruce Mosler, Cushman’s chairman of global brokerage, said at a briefing for reporters.
There were 25 leases for 100,000 square feet or larger in the first six months of the year, compared with 18 such deals a year earlier, according to Cushman.
Across Manhattan, asking rents climbed almost 5 percent in the 12 months through June to an average of $64.82 a square foot. Rates downtown averaged $49.21 a square foot, up 7 percent. In Midtown, rents rose 4 percent to an average $70.82 a square foot, while the increase in midtown south was 1 percent to $60.17.
Laggards already have lost the opportunity to lease office space in Manhattan for less than $40 a square foot, said Gus Field, vice chairman at Cushman.
“The $30 deal is dead downtown,” he said. Field said he expects low-end rents in the area to keep climbing into the low $50s a square foot.
Downtown’s vacancy rate of 10 percent is now lower than Midtown’s 11 percent, which is a rarity, Field said. Midtown south’s vacancy rate was 8.2 percent, the lowest in the U.S. for the last 26 quarters, he said.