Midtown’s Biggest Office Leases of 2018 (So Far)
The Midtown office market is being outshined by its flashier, more trendy neighbor, Midtown South, but the neighborhood is still poised to lease a record amount of office space this quarter.
Landlords in Midtown leased 7.1 million square feet of office space in the third quarter of 2018, according to Cushman & Wakefield, hitting the highest level ever since the brokerage began tracking leasing data.
“We’re on pace to end the year in Midtown with the highest [leasing activity] on record for any given year,” said Richard Persichetti, the head of tri-state research at C&W. “That speaks volumes for the Midtown market, where rents for the most part have been flat or declining.”
Office tenants have inked 17.2 million square feet of leases so far this year, up 15.9 percent from third-quarter 2017. The banner quarter in office leasing has been driven by five new leases greater than 100,000 square feet, including Pfizer’s leaseback of its 1.2-million-square-foot headquarters at 219 and 235 East 42nd Street.
And asking rents have slid 2 percent year-over-year across the board in Midtown, as lower-priced space hit the market. Average asking rents dropped $1.32 a square foot to $76.12, with six of the area’s nine submarkets recording declines in rents, per C&W. Roughly 264,000 square feet of lower-priced sublease space came up for grabs at 437 Madison Avenue, driving an asking rent drop of $6.78 a square foot to $91.90 along Madison and Fifth Avenues.
“We’ve seen better quality Class-A space leased up this year,” Persichetti said. “Rents drop as better space gets taken out of the market.” As Class-A vacancies have decreased, unfilled space in Class- B and C properties has ballooned, often because tenants who want cheaper offices are moving to newly renovated space Downtown.
Declining rents have driven Midtown landlords to offer record-high numbers of concession packages—like free rent and cash for build-outs—as they look to attract and keep tenants, Persichetti noted. The neighborhood is also set to get 19 million square feet of new office space by 2023, creating a fiercely competitive environment for landlords and an extremely favorable one for tenants. One Vanderbilt Avenue, Hudson Yards, Manhattan West, 66 Hudson Boulevard and 425 Park Avenue are among the projects set to deliver a hefty amount of new construction, Class-A office square footage over the next several years. (C&W defines Midtown as including areas between 34th and 42nd Streets, like Hudson Yards and Penn Plaza.)
Midtown South, meanwhile, has seen 291,000 square feet of new, high-priced space come up for lease at 512 West 22nd Street and 61 Ninth Avenue in the third quarter. Asking rents in the area have shot up to $76.42 per square foot, surpassing Midtown for the first time ever.
So, Midtown continues to thrive despite aging office stock and declining rents. In recognition of its banner-leasing year, here’s a roundup of the five largest leases signed to date in 2018, using data from C&W.
The pharmaceutical company inked a 20-year deal in April for 798,278 square feet across 15 floors at Tishman Speyer’s planned 65-story office tower at 66 Hudson Boulevard, also known as The Spiral. It simultaneously sold its headquarters at 219 and 235 East 42nd Street to David Werner for $360 million. Tishman officially broke ground on the skyscraper at 509 West 34th Street, near Hudson Yards, in June.
J.P. Morgan Chase
The financial giant nailed down a 436,905-square-foot lease for 16 floors and two retail spaces at L&L Holding Company’s 390 Madison Avenue in March. The week before, J.P. Morgan Chase announced that it would demolish its existing home at 270 Park Avenue and construct a new, 70-story headquarters building in its place. 390 Madison is only a block east of 270 Park Avenue, making it easy for the bank to relocate thousands of workers.
Latham & Watkins
The major corporate law firm sealed a lease for 407,000 square feet at Rockefeller Group’s 1271 Avenue of the Americas in April. The practice will occupy the 25th through 34th floors of the 48-story office building between West 50th and West 51st Streets. At the time, one of the firm’s managing partners told CO that its New York offices were the firm’s largest, with more than 450 lawyers.
In January, WeWork signed a 20-year deal for 273,246 square feet at the 45-story 500-512 Seventh Avenue, also known as 228 West 38th Street. The Moinian Group, Chetrit Group and Edward J. Minskoff Equities own the 45-story, 1.2-million-square-foot office complex between West 37th and West 38th Streets.
If that first quarter-million-plus lease wasn’t enough, then in August, the shared-space provider leased 258,344 square feet at TH Real Estate’s 21 Penn Plaza. It will occupy 10 floors, including the third through sixth floors, as well as the ninth, 11th, 12th, 15th, 16th and 17th floors.