Despite that its primary tenant—the financial services sector—is still in upheaval, the Class A Plaza submarket continued to see its average asking rent climb higher in May.
The 51.7 million-square-foot area closed the month at $85.75 per square foot, up from $85.30 per square foot in April—and its highest figure since December 2008. It is now up 29.6 percent from its (post-recession) low of $66.17 per square foot in June 2010; that said, it still remains 25.9 percent below its all-time record high of $115.66 per square foot set in May 2008.
With the somewhat unstable financial services industry occupying more than one-third of the space in this submarket, the question becomes, what is behind the rent increase? Well, it’s not really brain surgery: the vacancy rate has been trending lower, closing May at 11.2 percent—well below the recession-period figures of almost 16 percent.
Most importantly, however, is that sublet availability has dropped dramatically; there is currently more than 1.2 million square feet on the market, well off the almost 3 million square feet during the recession. That sublet space was generally “prime” and priced much lower than direct space. Now, what about the future? On the one hand, there is no new office construction in the immediate area that might cause a glut. But on the other hand, there were recent layoff announcements from a few big banks (though nothing too dramatic yet). If we can get through the remainder of the year without another large sublet increase, there is little to stop the Plaza submarket from pushing toward that record-high figure once again.
Robert Sammons, Cassidy Turley