Discount rents tempt Euro bank to Jersey.

BNP Paribas, one of Europe's largest banks, will be moving its midtown headquarters to Jersey City, stoking concerns in the process that other tenants may choose to follow in their footsteps as the city's rents continue to spiral upwards.

The bank will take 110,000 s/f at 525 Washington Street, where asking rents are in the mid $30s per s/f. Sources familiar with the deal say that it likely will get done at rates in the low $30s. In either case, they'll be far lower than even Manhattan's most inexpensive office sub-markets and certainly less than what the bank would have had to pay to renew its lease at 787 Seventh Avenue, the high-end midtown office tower where BNP Paribas has six floors, according to MrOfficeSpace.com.

With Manhattan rents rising and vacancy shrinking, brokers say that it is only a matter of time before more tenants begin to recoil and consider relocating their operations to the string of cheaper office districts that ring the city. Although they lack the amenities, prestige, or transportation infrastructure of Manhattan, neighborhoods like Long Island City, Downtown Brooklyn and Jersey City promise to become increasingly popular alternatives for tenants eager to reduce the sting of their monthly rent check.

While BNP's deal doesn't exactly constitute the kind of citywide exodus that some fear could grip the Manhattan real estate market if its rents rise too precipitously, the bank's move could be evidence that more tenants will perhaps be willing to expand the boundaries of their search for space past the confines of Manhattan.

In recent months, downtown has been the district that has accommodated midtown's overflow, tenants who were seeking cheaper alternatives or who simply couldn't find space amid the district's dipping vacancy rates. Year-end statistics show that in the last two months of 2006, while activity tapered off in midtown, leasing was up in Lower Manhattan. But now that downtown's vacancy has begun to drop as well, especially for class A space, landlords in the area have been increasingly able to bump rents, threatening the district's status as the go-to neighborhood for tenants seeking a bargain.

Of course, the same effect could already be at play in Jersey City, where brokers say that rents have jumped in Class A buildings from the $20s per s/f to over $30 per s/f in the last year. The increases have been the result of increased activity in the district. Roughly a year ago, Citibank took 317,000 s/f at Newport Office Center 7, a building owned by the Lefrak family and net-leased to UBS. Deutsche Bank and Merrill Lynch also expanded their offices in the area in recent months

Cushman & Wakefield brokers John Cefaly and Augustus Field represented BNP Paribas in the transaction. C&W also is the agent for the building's landlord, Brookfield Properties, who took exclusive control of the building after it acquired the property's former owner, Trizec--whose assets it divvied with its partner in the acquisition, The Blackstone Group. C&W declined to comment on the deal.