In my bi-weekly group meeting led by Mary Ann Tighe, CBRE’s Tri-State CEO, and Paul Myers, Executive Vice President, Mary Ann introduced the following New York Times article to the group for discussion – Midtown Landlords Trim Rents as Corporate Tenants Flee to Trendier Addresses. The article, published in print for the first time that Wednesday morning, does not say anything new. The notion that there is an oversupply of office space due to new construction Downtown and on Manhattan’s West Side, that these new buildings are taking traditionally Midtown-based tenants out of Midtown, making Landlord’s nervous and causing them to reduce rents, has been written time and time before. However, Mary Ann warned that we – as tenant and landlord advisors – be prepared to discuss this article with our customers. It is the New York Times, after all, and no one is denying their reach. Not surprisingly, she was right. When I got back to my desk that morning and spoke with my partner, Mike Movshovich, two customers had already sent him the article by e-mail, and another raised it on a call.
The article brings up a variety of factors to drive home its fundamental point that Midtown is in trouble, and landlord’s are starting to panic (just look at the title of the article.) Personally, I do not believe that to be the case today, and here’s why.
While it is true that Hudson Yards and Manhattan West have been successful in luring traditionally Midtown-based tenants into their new neighborhood, many of these relocations are still years away and these future commitments, at least for now, have not led to a softening in rents for Midtown. On the whole, Midtown market fundamentals remain strong with average asking rents continuing to climb, at $80.07 at the end of February and up 6% y-o-y. Other than SL Green, which publicly lowered rents in a number of their buildings following Marc Holliday’s comments about job growth, most Midtown landlords are sticking to their current asking rents and do not seem to be panicking, or “spending more money than usual to entice prospective tenants to check our their spaces,” as the article notes.
Everyone knows that markets are cyclical. Trying to predict how long a cycle will last and how it will end is a fool’s game. It’s possible that the market will correct, and that Midtown landlords will have to reduce rents to compete with new construction that often offers tenants column free floor plates, floor to ceiling glass windows, higher ceiling heights, and modern amenities like bike racks, showers and more outdoor green space. It’s also possible that the Midtown market will be flat for a number of years, like it was between 1981 and 1989, when average asking rents increased from $40.00 to $41.91 (only 4.78%) over an 8-year span. And it’s even possible that rents will continue to steadily climb, like they have been doing since 2010.
I am not one for predictions. Instead, I prefer to interpret the facts at present which to me, do not signify a softening Midtown office market. Solely looking at the numbers, the fundamentals of the Midtown office market remain strong. That may change, but until it does (and until the market statistics reflect the change,) it’s too early to be negative on Midtown’s ability to remain competitive. Many market pundits will tell you otherwise, but as of today, there has not been a Midtown market correction and everything else, including this New York Times article, is just a prediction based on sentiment.