In Midtown, the level of activity has picked up noticeably thus far this year. For the first five months of the year, Cushman & Wakefield reports that 6.6 million square feet of new leases were signed in Midtown, an increase of 24 percent over last year’s volume and the third-highest leasing volume of the past seven years. Despite this surge in leasing, the vacancy rate in Midtown has increased from 10.3 percent at the end of 2012 to 10.6 percent in May 2013, and asking rents have increased a modest 1.3 percent from a year ago.
There is one segment of the market that has been doing extremely well, and that is high-end transactions. Leases with a starting rent of $100 per square foot or above are booming. In the first five and a half months of 2013, there have already been 28 such transactions, while in 2012 there were 35 such transactions for the entire year. If these leases continue at the current pace, there will be more than 60 such transactions for the year, the highest number since 2008.
Prior to 2003, a starting rent of $100 per square foot was exceedingly rare. However, that barrier was decisively broken during the mid-2000s boom, such that in the year 2007 there were more leases signed with a $100-per-square-foot starting rent than there had been in the history of the city up to that point. While there have not been as many transactions above that rent level since the recession, it is no longer the barrier it once was.
The size of these transactions is generally small (the median size this year is roughly 6,700 square feet). However, they are an important barometer of the health of the market. The willingness and ability of a company to pay $100 per square foot or more shows that business is either already very good or there is strong confidence in the outlook.
Life at the high end of the market is quite good right now. We think it points to a healthy overall market in 2013 and 2014.