Spillover from Midtown South Benefits Nearby Submarkets
As average asking rent for Class B space in Midtown South reached $57.41 in the third quarter, the Downtown and Penn Station submarkets experienced increased activity in the Class B and C leasing, according to CompStak’s Third Quarter Effective Rent Report.
Effective rent in Midtown South increased $0.18 to $49.27 per square foot during the third quarter and tenants priced out of the submarket have been seeking alternatives elsewhere in the city, including Downtown, where overall office effective rent sits at $36.99 per square foot. Though that number is up $3.50 from the second quarter, the submarket still offers considerable savings over Midtown South. In a sign of the shift, ad agency Droga5 elected to swap 400 Lafayette for 120 Wall Street in a 91,442-square-foot deal.
Elsewhere, the Penn Station submarket has also emerged as a viable alternative to Midtown South and effective rent there increased 7.57 percent year-over-year, CompStak data shows.
In Midtown, activity in the triple-digit leasing market has slowed, with only 12 transactions of over $100 per square foot—half of the number closed during the second quarter. Effective rent in Class A space in Midtown fell as a result, down $1.31 to $66.00 per square foot.
The most significant activity in Midtown was in the Class B and C sectors, with new leases accounting for over 60 percent of total leased space in the third quarter. Renewals of over 104,000 square feet for Empire State Development and Baker Botts in Midtown were among the market’s most significant leases for the quarter.