If you were paying attention to office leasing activity and increased rents last year, you might say there’s no finer place than Downtown—even though it’s still a bargain compared to Midtown.
Total average rent for Class A office space in Lower Manhattan last year hit $51.65 per square foot, according to new market research by Savills Studley provided exclusively to Commercial Observer. It marks the first time since the recession that the area had rents above $50 per square foot. And rents are expected to climb as the available space gets tighter and leasing activity will slow down as a result.
The increase was an 8.5 percent jump from the 2013 total rent at $47.59 per square foot, according to the brokerage’s Downtown report. Rents in Downtown remain well above the national average of $44.37 per square foot.
“There is still a fair amount of value in the market. [But] a lot of that value has been leased up or squeezed out of the market,” said Keith DeCoster, the director of U.S. Analytic at Savills. “It will be a challenge for landlords to maintain the pace of leasing you had in 2013 and 2014.”
Concessions ticked up just a bit in 2014 when looking at Downtown, the report shows, to 27 percent last year from 26.9 percent in 2013. Many landlords with nearly full occupancy are expected to pull back on leasing options in the next year, according to the report. Prospective tenants looking to lease large chunks of space in long-term leases, however, are expected to still negotiate decent concessions for office space.
Heading north to the Midtown market, for which Savills conducted a separate report, the future remains uncertain because of steep competition with Downtown and Midtown South. Tenants in 2014 sought to cut costs by either reducing their share of office space or heading Downtown where the rents are cheaper.
Total rent in Midtown averaged $82.70 per square foot in 2014, according to the Savills report, which is nearly double the national average. It increased 7.5 percent from the 2013 total rent at $76.90.
Rents were higher in some areas of Midtown, particularly the Plaza District, Savills reported. That’s a result of demand by small private equity funds, which in turn has caused the highest amount of leases with asking rents above $100 per square foot since 2008.
Savills only expects that rent to go up as options for space ebb Downtown, and Midtown South rents continue to climb. At the same time, the brokerage thinks these landlords will be willing to give healthy concessions to tenants.
The report is also pessimistic about big-name leases being signed in Midtown in 2015. There have been, however, some mega-deals for the market in the first half of the year. Law firm Norton Rose Fulbright inked a 107,215-square-foot deal in May to move to 1301 Avenue of the Americas between West 52nd and West 53rd Streets. Skadden, Arps, Slate, Meagher & Flom, one of the largest law firms in the city, announced it would leave 4 Times Square after signing a 550,000-square-foot lease to move to Brookfield Property Partners’ 1 Manhattan West.