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Hedge Funds, Private Equity Made 2023 A Record Year For New York’s Priciest Offices

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More than a quarter of all office leasing activity in Manhattan last year had rents higher than $100 per SF, another data point showing that owners of trophy office buildings have increased their dominance over the market.

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350 Park Ave., a Midtown Manhattan skyscraper owned by Vornado

There were 196 office leases in Manhattan signed for $100 per SF or more last year, the most on record, according to JLL. The 5.6M SF of leases signed for at least triple-digit rents made up 26% of the market overall, which experienced one of its slowest years in recent memory.

But unlike in 2022, the top of the market is expanding, showing that companies signing top-dollar office leases are confident in their need for space going forward. All 10 of the biggest top-tier leases signed, either relocations or renewals, were expansion deals, according to JLL.

“Last year, the theme was paying up for less space, this year it was a lot of expansions,” JLL Vice Chairman Cynthia Wasserberger said in an interview. “I think Covid is in the rearview mirror for most tenants.”

Eighty buildings signed leases of more than $100 per SF, another new high, with RFR‘s Seagram Building signing the most high-priced leases with 12. Vornado‘s 350 Park Ave. had the most square footage leased at $100 per SF or higher, all attributed to Citadel‘s 585K SF deal last January.

Hedge funds and private equity firms like Citadel have signed a growing share of the city’s priciest office leases. Those two types of companies alone signed 44% of the $100-per-SF-and-up deals last year.

“The financial industry dominance was ridiculous this year,” said Wasserberger, whose specialty is in representing hedge funds and investment managers. “It’s like the ’80s again with finance and Wall Street, they were really dominant.”

Law firms and real estate companies signed 11% of the top-tier leases, including the priciest: Aimco‘s $247 per SF lease at One Vanderbilt, which was for less than 10K SF, according to Compstak

There is a shrinking number of these highest-quality spaces coming available, however. Vacancy at buildings built in 2010 and later is just over 9% compared to citywide vacancy of 15.6%, according to JLL. There is 15M SF of new construction expected to be delivered over the next five years, a 66% drop from the five years ending in 2023.

That is likely to boost Class-A or A-minus buildings, Wasserberger said, as firms with large expiring leases run out of trophy options. Most of the new construction popping up is in boutique office buildings, where lenders and developers are more confident in filling up space, she added. 

The large types of anchor leases that can spur new construction have been few and far between. Only seven of the leases for $100 per SF and higher were for more than 100K SF, according to JLL, and roughly 75% of the top-tier leases were for 30K SF or less.

That likely won’t have an impact on Class-B and C buildings, as the waves of financial distress hitting that part of the market have spooked tenants from moving into those buildings, Wasserberger said.

“Tenants were really being selective about picking landlords and buildings that could perform,” she said. “The financial stability and creditworthiness of a landlord was more important than ever. Tenants are saying ‘I need to make sure a landlord can fund my build-out.’ If there’s not a situation where the capital stack is in order, it’s too risky.”

Despite the fact that more leases were signed at more than $100 per SF than ever, the sluggish performance for the segments below the top of the market dragged average asking rents down in Manhattan by 0.8% year-over-year in 2023, according to Colliers

After 2023 broke 2022’s record for number of triple-digit office leases, Wasserberger said it’s clear that more tenants are becoming accustomed to paying more for the space they want, and the $100 club is becoming a less exclusive one. 

“Despite the fact that tech screeched to a halt, there was such record numbers and the finance demand was really robust,” she said. “It feels like that’s going to continue.”

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