Lease prices in Manhatten at record levels

17 Jan, 2007, New York

In the fourth quarter of 2006, lease prices almost reached the record levels achieved in 2000, with vacant Class A space falling to 4.4 %. The volume of investments has doubled in two years and retail lease prices are still rising.

At the end of 2006, the top lease price for office space in Manhattan was 45.35 USD per m² per month gross and has therefore risen almost 25 % in the past year (4^th quarter of 2005: 36.40 USD per m² per month gross). According to data from the New York office of Cushman & Wakefield (C&W), the international commercial real estate organisation, the top lease price just fell short of the record set in 2000 of 45.70 USD per m² per month gross. Last year C&W recorded 41 contracts with lease prices over 89.70 USD per m² per month gross (100 USD per square foot), three times as many as last year. Compared to the end of 2005, where lease prices in five office buildings were over 89.70 USD per m² per month gross, there were 21 office buildings at the end of last year that exceeded these levels.

This is due to the rapid increase in office lease prices last year, the increasingly limited space in the high quality sector and a decrease in vacant space. Indeed, the percentage of vacant space in Manhattan was 6.7 % at year end (2005: 8.4 %). The amount of vacant space also declined significantly in Midtown, Midtown South and Downtown, with the most marked decrease in Downtown. Here, vacant space fell to 8.4 % (2005: 10.6 %). In Midtown, it dropped to 6.4% (7.8 %) and in Midtown South to 5.6% (7.4 %).

Real estate advisers reported 42 large-scale lets last year, i.e. new lets and lease extensions for office space of over 9,300m² (100,000 square feet).

In addition, only a limited amount of new space came onto the market in the high quality sector last year. There was a total of 185,800m² planned for completion in the 7 World Trade Center and 505 Fifth Avenue, and by year-end, 60 % had already been leased. This year it is thought that only New York Times building will be completed, 77 % of which has already been leased.

The investment market continues to boom

According to C&W, yet another record was broken in 2006 on the New York investment market, with an estimated 30 billion USD in real-estate changing hands (last year: 20 billion USD), which is twice as much as two years previously. Among the largest transactions of the year was the sale of 666 Fifth Avenue by Tishman Speyer for 1.8 billion USD to Kushner Properties, arranged by the C&W Capital Markets Group in New York. This is the highest ever price agreed for a single office building. It just surpassed the largest transaction of the previous year, the sale of the MetLife Building for 1.72 billion USD.

For some large transactions, the square metre price was 10,764 USD (1,000 USD per square foot) and above. In December, an agreement was signed for Two Herald Square with a square metre price of just over 15,070 USD. Prices for first-class office space rose 37 % in New York.

The majority of real estate investments were made by private investors. They invested 18.5 billion USD in Manhatten, accounting for 62 % of the volume of acquisitions.

Retail lease prices continue to rise

In the most expensive high street in the world, Fifth Avenue, record lease prices continued to be recorded. The average lease price rose to 1,345.50 USD per m² per month gross at this address and at the end of 2005, it reached 1,166.10 USD per m² per month gross.

Retail lease prices also increased significantly in the Upper West Side, rising on average to 264.65 USD per m² per month gross (last year-end: 236.81 USD per m² per moth gross).

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