Commercial Rents Going Up

Cushman and Wakefield issued its first quarter report on commercial leases. Guess what? They think the market looks pretty good!

There was special attention paid to lower Manhattan–and the squabbles over whether the district can absorb the millions of square feet of new office space called for in the plans for Ground Zero. Despite an increase in vacancy rates this quarter, the report argues for continued development in the financial district.

“You have the fourth largest business district in the nation holding its own in an environment of uncertainty,” Mr. Mosler said. “The fact is that New York City is facing an office space shortage, which requires immediate attention to shift ongoing debate back to business. Preservation of New York’s stature as the worlds financial and business capital depends to a large degree on fulfilling the needs of growing companies. Downtown Manhattan is the most viable option for the near and mid-term to meet the demand for new office space.”

Some excerpts:

  • Average asking rents for Manhattan office space reached $43.20 per square foot at the end of March, their highest point in three and a half years.
  • The vacancy rate for class-A space in Midtown available directly from owners stood at 5.8 percent at the end of the first quarter, up slightly from 5.6 percent at yearend.
  • In Downtown Manhattan, average asking rents rose to roughly $35 per square foot, up from $31 at the end of the year. The Downtown vacancy rate rose to 11.6 percent from 10.6 percent during the same time period.
  • In the first quarter of 2006, the Manhattan retail market saw a number of brands break onto the scene as retailers who previously had a presence in department stores or assorted boutiques started to lease their own space.
  • With an approximate 70,000 room inventory, Manhattan will see about 3,500 hotel rooms leave the market due to conversions to residential use, but these rooms are all expected to be replaced between now and 2010 through new construction, with a particular focus on the West Side.
  • Full press release after the jump.

    - Tom McGeveran

    Cushman & Wakefield
    Dept. of Corporate Communications
    For immediate release
    * * *
    CUSHMAN & WAKEFIELD’S 1Q REPORT SHOWS MANHATTAN OFFICE RENTS ARE ON THE RISE

    Rents driven up by competition for existing space and new construction; largest tenants lock in room for growth as available space declines

    NEW YORK, April 4, 2006 – Cushman & Wakefield today released its first quarter report for the Manhattan commercial real estate market showing rents rising across the city’s three major office markets of Midtown, Midtown South and Downtown.

    Average asking rents for Manhattan office space reached $43.20 per square foot at the end of March, their highest point in three and a half years, compared to $40.58 at year-end 2005. The rent rise comes as overall leasing activity slowed in the first quarter, totaling 5.4 million square feet, down 19 percent from 6.7 million square feet in the first quarter of 2005.

    More significantly, the number of tenants willing to pay a premium for the city’s most expensive space has jumped dramatically. In the first quarter alone, 15 leases were completed at rents of more than $100 per square foot, compared to just 10 in all of 2005.

    Joe Harbert, Cushman & Wakefield’s chief operating officer for the firm’s New York Metro Region, said the rising rents are attributable to “a limited supply of available high quality space in Midtown, competition among tenants for existing space, and the addition of newer buildings to the market at significantly higher rents, which together tend to pull asking and effective rents up.