As residential markets all over the country crumbled this past summer, Manhattan’s remained strong. So, perhaps it’s little surprise that as commercial markets throughout the country now grapple with problems, Manhattan’s remains strong.
Thinking about commercial real estate now in the U.S. has to revolve around the problems in the credit markets. Money’s harder to come by for building buyers to finance their deals, and the credit market problems affect financial services firms that deal in debt and financing; financial services firms make up the bulk of leasers in the Manhattan office market.
Therefore, credit market problems are supposed to hamper the commercial market, squeezing both the would-be buyers of Manhattan buildings and a lot of the companies that lease space inside of them.
Whatever effect these problems are having on the investment sales market (when’s the last time you read about a $1 billion building buy in Manhattan), new information from brokerage Jones Lang LaSalle shows no impact so far on the prices for Manhattan office leases. Landlords are still able to charge higher-than-average rents to tenants in the borough’s choicest buildings. And tenants are still eager to pay.
The average asking rent for Class A office space in midtown was $87.22 a square foot by September, according to Jones Lang LaSalle, up from the 2006 average of around $80 a foot, and well ahead of any annual average stretching back to the mid-1990’s. Class A rents in every major submarket—midtown, midtown south and downtown—have, in fact, been on an upward trajectory going back to at least 2005.
And, in the first eight months of 2007, Manhattan landlords recorded 52 leases with rents of at least $100 a square foot, two more than in all of 2006, and much more than in all of 2005 and 2004 combined. The average Manhattan asking rent was just under $60 per square foot by mid-2007, according to brokerage Cushman & Wakefield.
For now, then, the Manhattan commercial market remains insulated from whatever problems in the credit markets. A reliable barometer for the market’s health—the amount of sublease space thrown onto the market by needy tenants—remains steady, according to Jones Lang LaSalle. That is, there’ve been no increases.
Once sublease space starts to increase, then look for trouble ahead in the commercial market. In these fading weeks of summer, however, look for continued success—at least, from a landlord’s perspective—as prices for office space remain at oftentimes historic highs.