NEW YORK CITY—The JLL October 2017 office report sets forth that the asking rents for Midtown trophy offices have still not reached pre-recession peak levels. The Colliers International October 2017 market snapshot report also states Midtown’s average rent remains 11.5% below the third-quarter 2008 high of $92.04.
Colliers reports that compared to October 2016, Midtown leasing was down by 36.66%. October 2017 leasing in Midtown decreased by 10.9% to .89 million square feet, the second consecutive month with less than one million square feet of deals. But the Colliers report says despite the drop-off in demand, availability declined with October being Midtown’s tightest monthly available rate since February 2016.
Colliers reports the average monthly asking rent in Midtown decreased by 1.6% to $80.19 per square foot. Cushman & Wakefield reports the Q3 2017 asking rent for class A office space in Midtown was $84.20 per square foot, and for overall office property in Midtown the asking rent was $77.67 per square foot. Q3 2016 asking rent for overall office property in Midtown was $79.91, according to Cushman & Wakefield.
Even with Midtown office rents down compared to historical benchmark highs, for new deals and expansions, the average market tenant improvement allowance now offered by landlords has increased threefold since 2008.
A major reason for the noticeable increase in tenant improvement allowance has been a market demand for pre-built space in Midtown. JLL reports landlords now generally spend $85 to $120 per square foot, three or four times an increase from the $30 per square foot average in 2008. JLL also reports that while 2,000 to 10,000 square feet is the typical pre-built size range, landlords have become increasingly willing to build larger spaces for tenants, granting improvement allowances.
Blue chip tenants have moved to the Financial District and are relocating West with the newest developments under construction. This was recently illustrated by Ernst & Young’s planned move leaving 90% of the rentable space at 5 Times Square to occupy 17 floors at One Manhattan West. In this tight competition for tenants, Midtown landlords are more amenable to accommodate tenant improvement allowances.
The JLL report documents a dozen Class A midtown properties, describing special installations, that sweeten the deal for tenants.
For example, 101 Park Ave., between 41st and 42nd streets, owned by Kalikow & Co., charges $45 per square foot with leases through Sept. 2018. Installations include 38 offices, two board rooms, three conference rooms, two pantries and 54 workstations, all fully furnished.
At the northwest corner of 54th Street, 900 Third Ave. is owned by Paramount. The asking rent is $79 per square foot with leases through April 2021. Installations include four offices, one large conference room, an open area with 12 trading desks and a pantry. This comes fully furnished.
The building at 450 Park Ave., at the southwest corner of 57th Street, is owned by Oxford Properties Group. The asking rent is $130 per square foot, with leases though November 2022. Installations include 10 offices, one board room, one conference room, three phone rooms and an open area with 34 trading desks.
As reported in GlobeSt.com, such tenant allowances are not only becoming part of the landlord-tenant negotiations in office spaces, they have also permeated the CRE practices in the retail sector as well.