Offices priced above $ 100 PSF return faster than cheaper space: CBRE – Commercial Observer

The $ 100 per square foot market for office rentals in Manhattan is coming back faster than spaces priced below that threshold, and that’s a good indication that flight to quality is the determining factor of the recent increase in class A transactions, according to a report by CBRE.

The borough recorded 105 office contracts at triple-digit prices last year, up 114% since 2020 and 18% above a five-year average. Meanwhile, spaces priced below $ 100 per square foot have consistently exceeded pre-pandemic numbers.

That doesn’t mean tenants have to dig deeper into their pockets to find workspace.

“When you look at the calculation of what it’s going to cost them out of pocket, you add in the concessions, you see that even in the $ 100 deal market the actual net rent is still low. ” Nicole LaRusso, CBRE’s Tri-State Research and Analysis Director, told Commercial Observer. “The sentiment in the market seems to be that landlords are feeling a little more optimistic about the possibility of raising their asking rents, but that there is still a need to offer a lot of concessions in order to get a deal done. “

LaRusso added that even though the market is small, the fact that Class A space is skyrocketing strengthens the argument that the flight to quality still has its grip on the Manhattan rental market.

“I’m not to say that the price doesn’t matter, but tenants are willing to pay higher rents in exchange for better amenities, better located buildings, new assets with quality building systems.” , LaRusso said. “Buildings at $ 100 fit that profile, in general. “

With a construction boom – and a home improvement boom – taking place just before the pandemic, the extra supply actually generated demand for upper-class spaces. The migration to buildings with state-of-the-art HVAC, high-speed elevators, proximity to public transportation, and other amenities that are now seen as the core of an office secure against COVID was already underway. The volume of this expensive space has grown 250% since 2016 to reach 11.1 million square feet by the end of 2021, according to CBRE.

But rent prices could hit new highs, according to the brokerage. The market had not seen as many deals of $ 150 per square foot as in 2021 since 2016, and more deals of $ 200 per square foot in Manhattan were signed last year than in previous ones.

Financial sector tenants occupied the largest share of spaces priced above $ 100 per square foot in 2021, 45%, but accounting for 69% of all transactions for the year, CBRE said. Likewise, media and entertainment tenants signed 18% of high-end leases, but were only represented by 3% of deals.

“I think we’re pretty confident that the market is on a fairly strong and steady rise from the low point of the pandemic,” LaRusso added.

Mark Hallum can be contacted at [email protected].

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