Bargains for Tenants
That’s going to make life harder for landlords, with the average Manhattan office rent at the end of May a shade over $74 a square foot, only half a percent more than a year ago. Spending by landlords on free rent periods, finishing out space and the like to retain and attract tenants is already close to a post-recession high, raising the cost of filling offices.
On the tenant side of the equation, the jump in sublease inventory downtown “could present opportunities for companies looking for less expensive space options, especially for well-built space,” said Caggiano of Colliers, adding that subleases “can eventually exert downward pressure on asking rents overall if the sublet space is not leased or removed from the market.”
The rise in subleasing means more companies will have a chance to enter the downtown office market at a price that makes sense for them, said Jeremy Moss, executive vice president for leasing at Silverstein Properties Inc. “If anything, this is a great opportunity for a tenant,” he said.
Wallach noted the district’s attractions to corporate tenants, including robust new transportation options and a livelier environment. “Downtown is different from the last time sublet availability was this high. The residential population continues to grow, there’s more hotels, there’s more of a live-work-play environment,” he said.
Plenty of Demand
The demand is evident. Leasing in Manhattan last month totaled 4.2 million square feet, almost 83 percent higher than in May of last year and consistent with growth since the beginning of 2017. Downtown accounted for about 1 million square feet of that, more than double the figure from a year earlier.
Brokers and landlords are hoping the wave of subleases will mostly end up the way Bank of New York Mellon Corp.’s did in March. J. Crew Group Inc. agreed to take the bank’s entire 350,000-square-foot headquarters at Brookfield Place when the lender decided to consolidate in its offices at 101 Barclay St. That averted a headache for downtown’s largest landlord, Brookfield Property Partners LP, which controls the 8.4 million-square-foot complex.
“It’s not 2009 again,” Caggiano said, noting that the economy is strong. “The subleases are not primarily the result of relocations out of downtown, and we have seen continued migration to downtown from Midtown and Midtown South.”
Lower Manhattan is no different than the rest of Manhattan, said Jessica Lappin, president of the Alliance for Downtown New York, a group of lower Manhattan businesses that provides security, sanitation and special-events programming for the area. On the whole, she said, “it definitely seems like it’s a scrappier market. I think people have to hustle a little bit more to make deals.”
Silverstein’s Moss said that “everyone is going to succeed as long as New York City is growing. This is not a war.”
This article was provided by Bloomberg News.