Trophy office building rents have returned to Manhattan's premier office buildings, according to JLL's spring 2014 Skyline Analysis, as demand from smaller financial services tenants continues to drive both activity and pricing. qatar property
Although the city's thriving media and tech industries have fueled demand for some trophy office buildings, especially in Midtown South and Downtown, the city's high-end product is still being held back by weak employment growth in large financial and legal services firms.
According to JLL, top-of-market pricing has hit its highest level since 2008. There were 81 transactions in 2013 of rents beginning at $100 or more, up from 51 in 2012. Year-to-date activity has remained strong, with over 20 properties now demanding direct rents of more than $100 per square foot, up from just 14 in the spring of 2013. Under this category, a smaller group of buildings with views of Central Park command rents of $150 to $200 per square foot.
Although these transactions only account for a small portion of overall velocity (the median size of leases in this micro-market was less than 10,000 square feet in 2013), they generate industry buzz and are said to serve as a benchmark for the rest of the trophy market.
"At the top of the industry, pricing and velocity have reached their highest levels since 2008," Peter Riguardi, president of JLL's New York tri-state operations, said. "More than half of Manhattan's top-tier trophy properties had less than a 5.0 percent vacancy rate. Smaller financial services tenants' demand has risen in tandem with recent Wall Street gains, including hedge funds and private equity firms. Sovereign wealth funds and other foreign-based financial tenants have emerged as new occupiers, leasing Manhattan locations that are comparable in profile to their London, Singapore, or Hong Kong offices."
In spring 2014, the city's top-end office buildings saw a 5.1 percent rent increase to $76.02 per square foot, up from $72.33 per square foot six months earlier. Rents in New York's trophy commodity increased by 3.6 percent from $73.35 per square foot a year ago.
As new product from the World Trade Center entered the market, vacancy rates for trophy office buildings in Downtown trended higher. The influx of new space has driven vacancy rates for high-end buildings in Lower Manhattan to a near-historic high of 22.4 percent. With current demand from a variety of industries at Brookfield Place — which also accounts for a large portion of the Downtown vacancy — the rate could drop by the end of the year.
Lower Manhattan trophy office buildings are around 33% less expensive than those in Midtown. At a price comparable to low-end Class A space in Midtown, new space at the World Trade Center provides trophy-quality space and world-class views.
Despite the high vacancy rates, JLL discovered that average asking rental rates for trophy office space in Lower Manhattan have reached levels not seen since spring 2009. In spring 2014, downtown rents were $61.24 per square foot, up 2.8 percent from $59.58 per square foot six months prior and 5.7 percent from $57.95 per square foot a year prior.
In Midtown, around 5.5 million square feet of trophy office space is being built. Although that might seem to be a lot of space, it only accounts for 1.2 percent of Manhattan's current inventory. Since 2000, less than ten percent of New York's inventory has been installed, compared to more than thirty percent in Shanghai. Almost seventy percent of Manhattan's office space was built before 1980. By some measures, even older cities like Paris and London have newer office stock than New York, with 20-30% of each city's stock built or renovated since 2000.
"With high-quality development, expanding facilities, and some of the best views in Manhattan, Downtown continues to draw value-minded tenants," said Riguardi. "Large blocks of discounted sublease space on Avenue of the Americas and elsewhere have resulted from sluggish growth in financial and legal services. The low pricing has weighted down the average and undercut asking rents on direct space, despite the fact that value seekers have quickly leased this space. Prices began to increase in the first quarter of 2014 as sublease space became scarce."
According to the spring 2014 Skyline Review, average asking rental prices for trophy product in Midtown have risen steadily over the past year. For the first time since spring 2008, trophy rents in the submarket surpassed $90 per square foot. Midtown rents increased 5.0 percent to $90.49 per square foot in spring 2014, up from $86.16 per square foot six months prior. Trophy rents increased 6.4 percent from $85.08 per square foot a year ago in this submarket.