With all the talk about the concept of the centralized office becoming extinct as more and more people telecommute, you’d think that office buildings in major cities would be experiencing vacancy rates of epic proportions.
While office space leases might be experiencing decline in some areas of the country, a recent report indicates that in one area of America’s most massive metropolis – New York City – office leases are being signed right and left as tenants seek to capitalize on some of Manhattan’s lowest commercial rents in quite a while.
In fact, says the Cushman & Wakefield brokerage, lease agreements covering some 3.7 million square feet of office space in lower Manhattan (sometimes referred to as the city’s financial district) were signed in the first half of 2014 – more than a 30% increase over the same period in 2013. The vacancy rate for offices dropped from over 12% to just 10% by the end of December 2013, partly because a couple of corporate giants – Time Inc. and Bank of New York Mellon Corp. – each leased out over a million square feet of workspace in Brookfield Place.
Some of the migration to lower Manhattan appears to have been at least partially motivated by rising prices in the midtown south market, regarded as between 30th and Canal Streets, as technology and media organizations looked to find less expensive alternatives to classic buildings in the area. Landlords were asking about $63 per square foot for office spaces in vintage midtown south structures, while similar properties downtown were asking just $40 per square foot. When considering whether to lease a million square feet, those numbers add up pretty quickly.
Another reason for the move south, says Cushman & Wakefield’s chairman of global brokerage, is that corporations were eager “to lock up deals before we see another rent spike.”
The initial part of that spike may have already shot upward to a degree that would make it impossible for some companies to take advantage of lower rents, as rents across Manhattan have risen 5% over the last dozen months, with rents in lower downtown now nearing $50 per square foot.
As a result, says another Cushman & Wakefield exec, “The $30 deal downtown is dead.”
So much for the premature prediction that offices aren’t necessary anymore. On the contrary, it’s more important than ever to make the best use of every available square foot of work space.