JLL: NYC Tenants Want the Best; Investment Grows in Brooklyn

NEW YORK CITY—Brokerage firm JLL has issued reports that detail the impressive flight to trophy office space in Manhattan by many tenants and the increased investment and opportunities that now exist in sections of Brooklyn in the office and industrial loft space sectors.

JLL states that trophy space in Manhattan was securing 21% more in rent than non-trophy space in the first quarter of this year. Average trophy rates in Manhattan in the first quarter of 2015 were $80.54-per-square-foot compared with $66.74-per-square-foot in non-trophy buildings. Direct rents for trophy-quality properties in the Plaza District reached $107-per-square-foot in the first quarter, while office space with Central Park-view options averaging $146.00-per-square-foot.

“New York continues to attract both capital and talent from around the world, and this trend shows no sign of tapering off,” says Tristan Ashby, vice president and director of research in New York. “And while in an active phase, construction of new office space in Manhattan is lengthy, expensive and ultimately limited by available sites.”

Available high-end space in Midtown, in particular, is in scare supply. The vacancy rate for trophy-quality buildings in Midtown was 8.4% in the first quarter of 2015, while the overall vacancy rate for Midtown assets stood at 10%.

The rapid lease-up of Brookfield Place in Lower Manhattan resulted in a substantially reduced availability rate from the recent historical high of 26.1% in mid-2013. The introduction of new large blocks of available space at 28 Liberty St. and 300 Vesey St. have taken back some recent gains and pushed the vacancy from 15.4% at the end of 2014 to 17.6% in the first quarter of 2015, JLL reports.

JLL also notes that New York City's investment sales market is on pace to reach or exceed the historical peak sales volume of $48.5 billion in 2007, with year-to-date sales reaching $28 billion. Pricing on a per-square-foot basis is up for all product types, including land, compared to prior peaks. Although significantly behind foreign investment levels in major gateway cities such as London and Hong Kong, foreign investor participation in New York real estate investment is running at slightly above 40% year-to-date, a marked increase from historical levels in the 15% to 25% range.

While some tenants are looking for space that seems to have a “money is no object” strategy, JLL reports that the Brooklyn market is drawing keen interest from tenants looking for quality, but economical space, as well as from investors who are looking to tap into that demand.

“Since 2012, major institutions have invested nearly $650 million in Brooklyn office and flex product,” says Michael Shenot, JLL managing director. “Tenant interest in the borough also has increased dramatically, and this trend is expected to continue as companies realize that the borough represents a potential annual savings of $15- to $20-per-square-foot.”

For traditional office space, located in areas such as Downtown Brooklyn, rents currently average $45.96-per-square foot. The popular category JLL describes as “brick and beam” that covers new and renovated industrial loft-style space, is the priciest in Kings County. The space popular with technology, advertising, media and information companies encompasses more than 3 million square feet and commands an average rental price of $62.42-per-square-foot in the DUMBO section of the borough.