Since 2012 leasing in B and C buildings are up 81.9% and nearly 50% respectively, while A product has enjoyed a more modest 33% gain in leasing volume during that period in New York City.
NEW YORK CITY—Due to a variety of factors, including a heightened preference by technology, advertising, media and information services firms for Class B and C space in Manhattan, the warfare among building classes has heated up here.
According to a “Behind the Numbers” report by Colliers International, the rent gap between the building classes (A, B and C) has narrowed. “Strong leasing by TAMI tenants in B and C product has begun to alter long held conceptions of building class in Manhattan,” says Craig Caggiano, executive director, Colliers International New York. “Many Class B buildings, now in high demand from TAMI tenants, have undergone significant capital improvements and trade at a premium to Class A assets.”
The Colliers research report notes that since 2012 leasing in B and C buildings are up 81.9% and nearly 50% respectively, while A product has enjoyed a more modest 33% gain in leasing volume during that period.
“Anecdotally, brokers report that building agents are more responsive than ever to space inquiries with stiff competition between building classes when there wasn’t any just a few short years ago,” Colliers states in the report.
Manhattan’s overall average asking rent hit an historic high of $73.92/per/square-foot in the first quarter of this year, less than 1% higher than the pre-Recession record of $73.31-per-square-foot achieved in the third quarter of 2008.
Colliers differs with other market analysts who claim that the spike in the overall office asking rent is due primarily to higher than average asking rents at a few trophy properties. The brokerage firm points to pricing gains in Manhattan’s B and C product with help from some Class A buildings in Midtown South and Downtown for the rent gains.
Today, the difference between Class A and C product is $23.21-per-square-foot. The delta between Class A and B space during that time period has fallen from $34.40-per-square-foot to $17.38-per-square-foot.
Caggiano adds, “With higher demand, availability rates in Manhattan Class B and C buildings are returning to pre-Great Recession levels faster than A buildings.” He notes that at the end of the first quarter of this year, the availability rate for Class B product in Manhattan was 9.0%, only 1.6 percentage points higher than the pre-Great Recession low of 7.4% during the third quarter of 2007.
Class C buildings’ availability rate at the end of the first quarter of 2017 stood at 8.4%, only 1.9 percentage points higher than its second quarter 2008 low. Manhattan’s Class A availability rate was 11.0% at the end of the first three months of this year, which was 3.5 percentage points higher than the 7.5% rate achieved in the third quarter of 2008.