Downtown Manhattan Asking Rents Reach All-time Highs in June
According to CBRE, the average asking rent in the Downtown Manhattan office market reached an all-time high of $62 per sq. ft., following the addition of 1.7 million square feet of space at 3 WTC.
This new peak--a 5% jump from the market's previous high in January 2017--marks the latest in a steady increase in Downtown average asking rents that began in 2012, following a surge of available new product priced at the top of the market. This, combined with the dramatic improvements that have enhanced the neighborhood's appeal, has caused Downtown's rent growth to outpace that of Midtown, and the historic disparity between the markets is shrinking considerably--from a gap of more than 43% at the height of the market, in 2007, to just 23.5% as of June 2017.
However, the trend of rising average asking rent belies the fact that Downtown remains the most affordable option for Manhattan-based tenants, offering a wide range of product and pricing that has been a major driver of tenant migration into the market. An Abundance of Well-Priced Pre-War Space Drives Tenants Downtown
Pre-war space has attracted many small to medium-sized firms from tech, media, advertising and information (TAMI) industries, which especially value features such as high ceilings, hardwood floors, arched windows and architectural details, and are willing to overlook older office product's lack of modern conveniences and efficiencies. That said, many owners of pre-war assets have invested in upgrading their buildings--improving lobbies, replacing windows and elevators, and overhauling electrical/cabling installations to satisfy the connectivity needs of tech-savvy tenants. These investments have added to the appeal of their space. Relocations to Downtown from Out-of-Market (2011-YTD 2017)
As TAMI took off in New York between 2010 and 2015, many of these companies sought competitively priced, architecturally distinctive space, and were drawn to the Midtown South market, which predominantly comprises stock built before 1944. TAMI firms' adoption of this neighborhood drove a surge in leasing activity, leading to tight availability and rents that quickly rose above $60 per sq. ft.
Numerous tenants, especially smaller TAMI firms, found affordable alternatives to Midtown South in the many pre-war assets in the Downtown market. In fact, more than half of the 400 tenants that have migrated into Downtown since 2011 have chosen space in the neighborhood's pre-war buildings, seizing the opportunity to secure architecturally distinctive space that would command substantial rent premiums in other parts of the city. While rents in this segment of the Downtown market have grown as demand has increased, there is still a considerable differential--24.4%--in asking rents for this stock between the two markets. As of June 2017, the average asking rent among pre-war space in Midtown South stands at $68.53 per sq. ft., while in Downtown, the asking rent averages $51.83 per sq. ft. for space of a similar vintage. Value-Priced Space Availability across Manhattan
While the pre-war segment offers some of the best values in the market, Downtown boasts significantly more space options priced well below the overall Manhattan average of nearly $75 per sq. ft. than can be found in Midtown or Midtown South. Current availability Downtown includes more than 1,200,000 sq. ft. of space priced at $50 per sq. ft. and below, while Manhattan's two other markets offer less than a quarter of that amount combined. Additionally, there is over 4.1 million square feet of space available Downtown in the range of $51 to $60 per square foot, giving tenants far more options than can be found in either Midtown or Midtown South. Among this Downtown space, 47% is found in pre-war assets, while 17% is available in buildings built after 1980.