-28% -23% -20% 11% 27% 37% 49% 70% $ 4 0 . 5 3 $ 4 6 . 8 3 $ 4 8 . 6 2 $ 6 2 . 2 9 $ 7 0 . 1 4 $ 8 0 . 9 4 $ 8 7 . 9 6 $ 9 7 . 0 8 $ 1 1 0 . 6 2 $ 5 0 . 9 5 $ 5 4 . 3 3 $ 5 7 . 0 0 $ 7 1 . 0 9 $ 7 9 . 4 9 $ 9 0 . 8 1 $ 9 7 . 8 7 $ 1 0 6 . 4 1 $ 1 2 0 . 2 5 $0 $ 20 $40 $60 $ 80 $100 $120 $140 Third Avenue Class A Seventh Avenue Class A Grand Central Class A Midtown Class A Plaza District Class A Mi dt own Tro ph y Pl aza D istr ict Trophy Midtown Trophy (Tower) Plaza District Trophy (Tower) October 2010 The P remium Cur veIn thi s m onth' s report, we evaluate the starting rents achieved in M idtown as of the end of the sum mer 2011. Using M idtown's Class A leasing transactions as a benc hm ark, the averag e transaction’s starting rent wa s just over $71.00 pe r sq. ft. In assess ing the prem ium (ab ove C lass A M idtown sp ace) for Plaza D istrict space, trophy buildings, and tow er floor units, the data reveals the following: The s carcity in tow er floor units (those abo ve the 25th floor) has contributed to a significant increase in rental rates. With a vacancy rate of just 3.5% for these tower floor units, the completed lease data reflects a tremendous premium paid by tenants: Rents by Submarket July-August 2011 the premium for Plaza District Class A space was 11% - ave rage s tarting rent of $79 .49 pe r sq. ft. for trophy space within Midtown generally, the premium was 27% - ave rage starting rent of $ 90 .81 per sq. ft. for trophy space in signature Plaza District buildings, the premium in starting rent jumps to 37% - average starting rent of $97.87 per sq. ft. tower floor units withi n midtown trophy buildings garnere d a 49 % premium - average starting rent of $106.41 per sq. ft. tower floor units wi th the Plaza District's tr ophy building s ubset saw a premium of nearly 70 % abov e M idtown C lass A - averag e starting rent of $120.25 pe r sq. ft. N E R Starting Rent
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In this month's report, we evaluate the starting rents achieved in Midtown as of the end of the summer 2011. Using
Midtown's Class A leasing transactions as a benchmark, the average transaction’s starting rent was just over $71.00 per sq. ft. In assessing the premium (above Class A Midtown space) for Plaza District space, trophy buildings, and tower floor units, the data reveals the following:
The scarcity in tower floor units (those above the 25th floor) has contributed to a significant increase in rental rates. Witha vacancy rate of just 3.5% for these tower floor units, the completed lease data reflects a tremendous premium paid bytenants:
Rents by Submarket
July-August 2011
the premium for Plaza District Class A space was 11% - average starting rent of $79.49 per sq. ft.
for trophy space within Midtown generally, the premium was 27% - average starting rent of $90.81per sq. ft.
for trophy space in signature Plaza District buildings, the premium in starting rent jumps to 37% -average starting rent of $97.87 per sq. ft.
tower floor units within midtown trophy build ings garnered a 49% premium - average startingrent of $106.41 per sq. ft.
tower floor units wi th the Plaza District's trophy building subset saw a premium of nearly 70%
above Midtown Class A - average starting rent of $120.25 per sq. ft.
October 2010At the opposite end of the spectrum were opportunities in specific submarkets such as Grand Central Class A, whichshowed a discount of approximately 20% to Midtown Class A. In 2011, the average starting rent was $57 per sq. ft.
More value-driven opt ions were apparent in corridors such as Third Avenue, where the average Class A starting rentwas nearly $51 per sq. ft. This represents a28% discount to Midtown Class A. Similarly, Seventh Avenue (below 55thStreet) had an average starting rent of $54.33 per sq. ft., 23% below the Midtown Class A average.
Thenet effective rents, shown in grey, take into account base rent less concessions for free rent and tenantimprovement allowance. On average across the various submarkets, the difference between starting rents and neteffective rents is approximately $8 - 10 per sq. ft.
Asking Rents Correlation to Stock Market Index
The commercial office market typically reacts once there is a sustained shift in economic conditions. As shown below,asking rents tend to lag the stock market by approximately one year at both market peaks and troughs. While thestock market peaked in 2007, Class A asking rents did not peak until 2008. Conversely, the S&P hit a recent low in thefirst quarter 2009, while asking rents troughed one year later, in the first quarter of 2010. It is important to note, however,that net effective rents or taking rents often react more quickly than market averages for asking rents, as landlordconcessions are negotiated in real time.
Growth in office-using employment growth is expected to remain relatively flat over the next 12 months with only modestgains forecast into early 2013. Sustained growth will begin in 2014 after which employment levels are likely to reachpre-recessionary levels. Asking rents for Class A space in Midtown could spike by as much as 15% as increases in the
job market push vacancy levels below equilibrium.
As a point of reference, in May 2008, Class A rents peaked at $96.96 per sq. ft. while trophy rents reached $122.00 per sq. ft.