Class B Office Rents Reach Historic High

NEW YORK CITY—The New York City commercial office market continues to rebound from its unpleasant start this year posting overall positive space absorption of more than a quarter million square feet in May, according to a report released today by brokerage firm DTZ.

The New York City office market began the year with a negative absorption of 2.3 million square feet in January, but has since posted four straight months of positive absorption, DTZ states in its office market report for the month of May.

Since the end of January the Manhattan office market has posted approximately 1 million square feet of positive absorption with 253,303 square feet absorbed in May. Both Midtown and Downtown contributed to the decrease in available supply, but those gains were offset by an increase in supply in Midtown South; causing overall availability to drop 10 basis points to 9.6%. Class A asking rents dipped $0.09-per-square-foot to $77.09 per-square-foot, while Class B asking rents jumped $0.34-per-square-foot to $60.21-per-square-foot. DTZ reports that Class B rents surpassed the $60.00 threshold for the first time in history.

Among the key takeaways from the DTZ report include the fact that only four out of nine Midtown submarkets posted positive absorption in May, but three of the four submarkets posted positive absorption greater than 100,000 square feet. DTZ notes that despite less than half the submarkets posting positive absorption, the availability rate still decreased 10 basis points to 9.7%. The Class B sector bounced back with a positive 278,532 square feet of absorption in May after recording more than 1 million square feet of negative absorption throughout the previous four months.

A good sign for the Midtown office market is that with the 287,009 square feet of positive absorption during May, the Midtown office market has recovered almost all of the 998,133 square feet of space that was brought to the market at the beginning of 2015.Class A asking rents in Midtown dipped $0.11 to $85.76-per-square-foot, mainly due to space returns in the Grand Central and East Side/UN submarkets. The Hudson Square/Tribeca submarket posted a negative 189,539 square feet of absorption during May, due to Metropolitan College of New York's 121,240-square-foot space placed on the market at 75 Varick St.

In Downtown Manhattan, availability dropped another 20 basis points last month to 12.2% despite the absence of large transactions. Through the first five months of 2014, Downtown inked six transactions greater than 100,000 square feet, compared to only one thus far in 2015, DTZ reports. So far this year 75% of Downtown's leasing activity has come from leases 20,000 square feet or less, compared to 70% in 2014. Downtown posted a second consecutive month of positive absorption at 161,899 square feet. Class A asking rents there fell $0.14-per-square-foot to $61.61-per-square-foot. Downtown Class B rents fell $0.02-per-square-foot to $44.11-per-square-foot.

DTZ expects office space demand in Downtown Manhattan to increase for the remainder of 2015 as several large deals are expected to close as Downtown remains a value-option for tenants.