Rising demand for space from Internet and media firms helped boost rents at office buildings south of midtown Manhattan by 5.6 percent in the first quarter, according to a report by Cushman & Wakefield Inc.
Rents in Midtown South (CWRR1NMS), the area below 32nd Street and north of Canal Street, rose to $48.45 a square foot from $45.90 at the end of 2011, Cushman said today in a statement. Asking rents at the highest-quality office properties rose 18 percent to $67.52 a square foot, or about $4.56 less than Midtown’s so- called Class A buildings. Midtown South’s vacancy rate fell to 5.9 percent, the lowest of any U.S. business district.
Increasing rents reflect “a whole cultural change” taking place in Midtown South, which includes such trendy neighborhoods as Chelsea and the Meatpacking and Flatiron districts, said Joseph Harbert, Cushman’s New York-area chief operating officer. “Creative” firms are crowding into those areas, while rents in the more traditional office markets in Midtown and lower Manhattan grow more slowly, he said.
“Everyone wants to be in Midtown South,” Harbert said in a telephone interview. “It’s been desirable from a residential standpoint, and retail. And now people want to live close to where things are cool, and then they want to work there too.”
Rents sought by landlords throughout Manhattan rose 3 percent from the fourth quarter to $58.96 a square foot, while the borough’s vacancy rate was unchanged at 9.1 percent. In Midtown (CWRR1NMT), rents gained 2 percent to $66.70 a square foot, and vacancies climbed to 9.9 percent from 9.6 percent. Downtown (CWRR1NDT) rents increased 1.2 percent to $40.37 a square foot as the vacancy rate fell to 9.2 percent from 9.5 percent.
Manhattan in general is poised for steeper rent growth and vacancy declines, said Kenneth McCarthy, senior economist at Cushman. Office rents may increase about 15 percent by the end of 2013, he projected.
A mid-March revision by the U.S Labor Department showed New York City added 71,900 jobs in 2011, almost twice the earlier estimate. The city now has a record 3.838 million jobs, exceeding the previous high of 3.83 million set in June 1969, McCarthy said. It is among three U.S. cities that have recovered all the jobs lost in the 2009 recession -- the others are Washington and Houston -- and employment growth should continue in the next few years, he said.
The market will add about 7 million square feet (650,000 square meters) of offices by 2015, mostly because of the rebuilding of the World Trade Center, bringing the total to about 400 million square feet, McCarthy said. That won’t be enough to head off rent increases, he said.
In the first quarter, leasing by information and media companies overtook financial services, the traditional main source of Manhattan office demand, for the first time in Cushman records, Harbert said.
While financial companies still occupy a third of the borough’s office space, they took only 26 percent of the 5.8 million square feet leased so far this year, compared with 28 percent for media and technology firms. Those companies tend to seek spaces of less than 100,000 square feet, Harbert said.
Companies that signed leases in the quarter included Chandler Chicco Agency, a health-care communications firm that took 75,000 square feet at 450 West 15th St. in West Chelsea, near Google Inc. (GOOG:US)’s building at 111 Eighth Ave. Take-Two Interactive Software Inc. (TTWO:US), publisher of the “Grand Theft Auto” video games, took 68,000 square feet at 622 Broadway in NoHo, according to Cushman.
Midtown South had an influx of Internet companies in the late 1990s, when it became known as Silicon Alley, only to crash in the dot-com bust. Even if something similar happened, the area will remain desirable for tenants of all kinds, Harbert said.
“People are actually choosing the ambiance, the aura,” he said. “There’s something about being down there that makes them feel good about going to work every day as opposed to being in the canyons of Sixth Avenue, in a corporate mode. There’s a non- corporate trend going on as well.”
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