Jones Lang LaSalle


Midtown rents surge to $100 threshold
Tight market raises prices for larger spaces at select spots
By Julie Satow Published on January 23, 2006

Until recently, only hedge funds and private equity firms taking small spaces in midtown Manhattan's best buildings were willing to pay $100 a square foot in rent. Now more companies leasing larger office spaces are hitting this benchmark price.

The number of Manhattan leases signed at $70 a square foot or more in 2005 jumped to 79, a 65% increase over 2004 figures, according to a year-end market report from Cushman & Wakefield Inc. In one of the largest deals, Wachovia expanded by 75,000 square feet at the Seagram Building at 375 Park Ave., which went for an average of $100 a square foot.

At 9 W. 57th St., hedge fund Och-Ziff Capital Management paid just shy of $100 per foot for a 32,000-square-foot expansion. Hedge fund Glenview Capital Management leased 23,000 square feet at the General Motors Building at 767 Fifth Ave., paying $120 a square foot for the first five years and $125 for the last five years.

"Prices continue to edge upward as the financial services industry absorbs the better spaces at the city's top buildings," says Tara Stacom, a vice chairman of Cushman & Wakefield, which represents 9 W. 57th.

Financial services firms--which drive much of the leasing in midtown--are flush with cash thanks to the strong economy, and they're starting to expand. Space, however, is getting tight.
Wachvia, which had leased 180,000 square feet at the Seagram Building early last year at a cheaper rent, soon found it needed additional room, but there were few openings. The bank decided to lock in expansion space at the exclusive property before prices rose even further, Vice President Fred Catalano says. "If you asked us a year ago did we think rents would increase so dramatically, we would have said no," he observes.

The higher rents are likely to stick, since it will be several years until new Class A office space is available. The New York Times headquarters, the Bank of America tower and the revamped Verizon Building could put another 2.7 million square feet on the market, but not until 2007 at the earliest.

"In the past few months, we have seen these higher rents, and I think the phenomenon will firm itself even more over this year," says Peter Riguardi, president of the New York region for Jones Lang LaSalle, which represented Wachovia.

Exceptions, not the rule

Admittedly, $100 rents are not widespread. According to Cushman & Wakefield, the average rent in midtown is $47.41, a far cry from the triple-digit mark. On Madison Avenue and Fifth Avenue, where prices are generally the highest, Class A rents average $74.29 a square foot.
"These $100-a-square-foot leases are the exceptions, and not representative of the midtown market," says Mitchell Steir, chief executive of brokerage firm Studley.

The pricey deals can be attributed in part to companies such as Wachovia--so-called captive tenants--that pay extra to expand their existing offices because it's less of a hassle than relocating.

"That is a much different scenario than available space being leased by a party that can choose one building over another," says Mr. Steir. He adds that most large leases remain in the $60-a-square-foot range.

In fact, some of the city's most exclusive buildings have yet to reach the $100 mark. At 230 Park Ave., leases for the highest floors with north-facing views have topped out in the high-$80- to $90-per-square-foot range, says Anthony Westreich, whose Monday Properties is part-owner of the building.

Lower-profile buildings are even less likely to attain rents of $100 a square foot, but they are benefiting from the general rise in prices.

"The less desirable buildings will also see their rents continue to ratchet up, even if they do not reach this benchmark," says Cushman & Wakefield's Ms. Stacom.