Big space equals big rents in city craving contigious.
Would the entry disrupt all the progress the market had made by injecting just enough space to dilute supply and consequently perhaps take a bite out of rents?
"First we had the Aon sublease space hit the market, then the Time Life sublease space and now this block," Riguardi said. "I went into our Monday market meeting and asked if this all could be a sign of some kind of slowdown. The total consensus was no, not at all."
Sure enough, just after REW's conversation with Riguardi, a source revealed that Lehman Brothers, who has been searching for a large block in recent weeks, already may be in negotiations for the entire space at 1166 Avenue of the Americas. Aon, who REW first reported put 200,000 s/f of space at 55 East 52nd Street on the market in February, meanwhile, has subleased most if not the entirety of its space through CB Richard Ellis broker, Kenneth Rapp.
And 522 Fifth Avenue, which was just purchased by Broadway Partners and will be completely vacated by current tenant JP Morgan Chase this summer, is said to be drawing the interest of financial giant, Bear Sterns, who may take some, if not all, of the building's 600,000 s/f.
The fast disappearance of these entries into the big block market provides evidence of a strong and deep level of demand and also the quickening pace of leasing for what is already perhaps the city's scarcest real estate commodity; large contiguous blocks of class A office space. Even as big blocks are occasionally shed, they have been so far been eaten up by a market that only seems hungry for more.
"I was wrong," said Newmark Knight Frank executive vice president, Mark Weiss, who had stated in a conversation with REW months ago that the stock of big block space in midtown wouldn't dip into scarcity because blocks like the Time Life sublease space at 1271 Avenue of the Americas would always create at least moderate levels of availability. "We've definitely moved into a supply demand imbalance and it's going to continue to get worse. Landlords have absolutely no fear of vacancy right now."
While the shrinking list of large block space has been a long foreseen trend, Weiss said that the volume of space absorbed over the past year has still taken many brokers by surprise.
"A lot of big firms that took space did so under the pretense of a relocation," Weiss said. "But then they relocated and wound up keeping the space they had, so a lot of firms' relocations actually turned into expansions."
Citibank was a prime example of this, taking hundreds of thousands of square feet throughout the city in recent months, including a 300,000 s/f lease at 485 Lexington in September 2005. Sources say that the bank had originally intended to shed space but never did.
"When financial firms grow, they typically grow explosively," explained Robert Flippin, a managing director at Jones Lang LaSalle.
The more big block deals there are, the more large office users seem to be circling the dwindling number of remaining spaces, concerned perhaps that availabilities in the market will dry up.
"If you go out and see four blocks of space, the next time you go out you might be looking at four different blocks of space because the other ones got taken," said Peter Turchin, an executive vice president at CB Richard Ellis. "In fact, the next time you go out there probably wouldn't even be four blocks left but maybe two or three with the way this market is going."
The intense interest landlords have been getting for large blocks has more than helped them resist any urge they may have had in the past to dice up their space and tap the loftily priced market for smaller spaces. Some of the city's most prestigious buildings, like the GM Building, which do deals above the super luxury benchmark of $100 per s/f, typically sign leases in the tens not hundreds of thousands of square feet.
"I have been getting tons of interest for the top floors we have available at 195 Broadway and Metropolitan Tower," said David Levinson, a principal at L&L Acquisitions which owns both buildings. Both 195 Broadway and Metropolitan Tower have over 100,000 s/f of vacant contiguous space.
"I get offers for the top floor of 195 Broadway, incredible offers, but we're not going to break the space up. It's the same thing at Metropolitan Tower. Tenants have come to us wanting to rent only the top floors but we're not going to do that. This is a market where we know we'll be able to rent larger blocks at great rents."
Prime big block space, which Turchin defined as high quality contiguous space above 150,000 s/f in size, have become so scarce that rents for such space have grown more expensive than even small blocks of high quality space, an occurrence that, up until recent months, has been uncommon.
"Big blocks are getting a premium," said Paul Glickman, an executive vice president at Cushman & Wakefield.
Glickman said that he has responded to the tightening in the market by lifting asking rents markedly at 505 Fifth Avenue and 485 Lexington Avenue (Grand Central Square) properties for which he is an agent. "At 505 Fifth, we're getting rents that are higher than we had originally anticipated," Glickman said. "The rents there were always at the top of the Grand Central market, in fact they were really like pricing in the Plaza District, but the improving market has carried them even higher."
Asking rents in the building are as high as $90 per s/f.
The attention big blocks of space are getting is also helping pricing for smaller blocks of space.
"Landlords aren't breaking up big blocks into smaller spaces because the market is so hot," said Kenneth Krasnow, an executive vice president at Trammell Crow and director of the firm's tri-state brokerage. "Which means that the supply for spaces anywhere from 20,000-50,000 s/f will continue to constrict steadily. Rents in that space category will consequently remain high and continue to rise."
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|Publication:||Real Estate Weekly|
|Date:||May 31, 2006|
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