How Low Can Midtown Rents Go?

The downward pressure on rent is a natural consequence of the amount of sublease space flooding the market. In Manhattan, there were 16.1 million square feet of sublease space available during the third quarter, with Midtown set to add at least 600,000 square feet more before the end of the year, according to a report from Newmark (NMRK). 

That will put Manhattan over the top of the post-Great Recession peak of 16.3 million square feet, and above the all-time peak of 16.7 million square feet after the dot-com bust in 2002. 

Average asking rents have not actually changed much in Midtown since last year, per Cushman. That’s partially because some of the large blocks of sublease space have been fairly high-end, canceling out the effects of the cheaper space available, said Lori Albert, a research director at Cushman. 

That won’t hold forever. “Right now landlords are holding pretty firm on their pricing, but as more space comes on, we expect to see more of a decline,” Albert said. 

Even now, at least one company is asking $30 per square foot for a 70,000-square-foot block, Albert said, and another is paying as low as $25 per square foot on Park Avenue, according to the New York Post. In that deal, 5W Public Relations subleased 28,336 square feet at 299 Park Avenue for $25 per square foot from MarketAxess. Notably, the lease term was 18 months, ending in February 2022, which could explain the low price point.

“Sometimes, if it’s a short-term space, the rent will be lower,” Albert said. “That’s usually the case in a decent built-in, where [if] it’s a very low, sublease asking rent, it’s usually a short-term.”

While $30 is rare, the number of sublease spaces asking below $40 or $50 per square foot in Manhattan has increased rapidly since February, according to data from Newmark. There are currently more than 2.5 million square feet of sublease space asking under $50 per square foot, distributed across 129 buildings, an increase of 165 percent since February. 

That includes a sixth-floor space at 600 Lexington Avenue, where landlord Property Group Partners is asking $48 per square foot, and an 11th-floor space at 535 Fifth Avenue, which Avison Young is marketing for $49 per square foot, according to listings. 

Of course, asking rent is only half the story; the real question is what people are actually paying. At 99 Park Avenue, where The Real Deal reported asking rent of $52 per square foot, real estate firm Keller Williams is rumored to be paying just $20 per square foot, a number the NYP reported as unconfirmed. 

The trend toward more sublease space and lower rents doesn’t look poised to change in the near future. Midtown tenants, including McGraw-Hill, IPG, Starr Companies, and Ogilvy & Mather have all put sublease blocks on the market greater than 90,000 square feet, according to Newmark and Savills, and there’s more still to come. 

At the Empire State Building, Global Brands Group has around 100,000 square available for sublease, Commercial Observer reported. That came online after Centric Brands signed a direct deal at the iconic building for 212,000 square feet and gave back some of the space it had been leasing from GBG, per CO’s report. 

Overall, the total availability rate in Midtown was 14.6 percent in the third quarter, but that number was over 18 percent for Times Square, the Far West Side, the Plaza District and the East Side, according to the Newmark report. 

In Manhattan, overall, 3.6 million square feet of sublease space was added to the market, with an additional 1.1 million square feet expected, including the 600,000 square feet from Midtown, according to Newmark. One driver of that has been coworking firms, which continue to shrink their footprints. Since the start of the pandemic, they have been responsible for 1.2 million square feet of sublease space, per the report. TAMI (technology, advertising, marketing and information) tenants, in general, which include coworking, account for 19 percent of the shadow space available, according to Cushman.