Number of Office Leases Commanding Top Dollar in Manhattan Jumps to Five-Year High, Study Finds
CBRE Scorecard Paints Sharp Contrast With Record-High Vacancies, Declining Rents in New York
New York may be struggling with record-high office vacancies and declining rents, but the so-called flight to quality has led to another plateau in sharp contrast. Manhattan office leases commanding at least $100 per square foot in starting rent last year jumped to at least a five-year high, according to a new study.
The number of $100-plus deals, or what’s considered the high-end threshold, more than doubled to 105 in Manhattan from 49 in 2020 and increased 18% from the five-year average, real estate firm CBRE said, looking back at data between 2016 and 2021. Among those deals, transactions that had starting rents of at least $150 also rose to a record 31, including five that had rents of at least $200, also the most transactions ever in that price range, according to the report.
Nearly 70% of the high-end deal count and 45% of the total square footage signed came from financial tenants, CBRE said. Entertainment and media companies as well as tech tenants rounded out the top three sectors shelling out top dollar for coveted spaces.
“The flight-to-quality trend among Manhattan office occupiers is boosting the market for high-end space,” the report said.
Top-tier properties, including new or renovated buildings that feature “abundant amenities, modern building systems and easy access to public transportation,” have attracted tenant appetite and commanded triple-digit rents during the pandemic, according to the study.
“Landlords with trophy assets are pricing their space at higher levels,” CBRE said.
Capitalizing on the demand, the total square footage of available space with asking rent of at least $100 per square foot rose to 11.1 million square feet last year, up from 8 million in 2020 and 6.8 million in 2019, and a 250% increase since 2016, the report found.
The study echoes other leasing activities that point to coveted properties, including SL Green Realty’s new trophy tower One Vanderbilt and Brookfield Properties’ One Manhattan West, that have lured well-heeled tenants and brought above-market rents. With the omicron variant of COVID-19 further delaying New York’s return-to-office pace, landlords have said employers are hoping in-demand properties will help lure their employees back to the office.
New York’s office vacancies have shot up to a record high of 11.9% while market rent has declined to under $57 per square foot from a record high of just over $60 reached in the fourth quarter of 2019 pre-pandemic, according to CoStar data.
Less than 18% of New York workers are back in the office, below a 10-city average of 28%, according to security firm Kastle Systems’ weekly keycard access data through Jan. 5.
When factoring in tenant concessions and improvement allowances, high-end properties’ net-effective rents stood at just $84 per square foot on average last year, above $67 per square foot last year but 24% below $111 in 2016 and 6% below the pre-COVID five-year average, according to the CBRE report.
The value of average tenant improvements, for instance, has doubled among these deals and rose each year to $154 per square foot last year from $76 in 2016, the report said. Free rent given also rose to 16 months from 13 months during the same time.
“Landlords are achieving higher face rents, but at the cost of considerable tenant improvement allowances and free rent packages,” according to CBRE.
Net-effective rent in CBRE’s study was calculated based on direct, new leases with terms of at least 10 years.
In another sign of the mixed outlook still facing Manhattan’s office market, fourth-quarter office leasing of 8.19 million square feet was 30% higher than the five-year quarterly average of 6.27 million square feet, but the quarter’s availability rate rose 0.1 percentage point to 18.7% from the third quarter and was up 3.3 percentage points from a year earlier, according to a separate CBRE report released Tuesday.
Full-year leasing activity of 20.42 million square feet was up 63% from 2020 level but lagged the five-year average by 19%.
“Strong Q4 2021 leasing activity is another data point confirming that the office market is on recovery path,” said Nicole LaRusso, senior director of research and analysis for CBRE. “Even as the omicron wave has delayed short-term plans for return-to-the-office, occupiers continue to make long-term commitments to new space.”
The market, however, still “has a lot of excess supply to wrestle with,” she said, adding “higher quality” office properties will continue to outperform.
Full article by Andria Cheng: https://www.costar.com/article/454654791/number-of-office-leases-commanding-top-dollar-in-manhattan-jumps-to-five-year-high-study-finds