There’s no space like trophy space. The premier office towers that make up New York’s skyline boast — by far — the most expensive office space to rent, garnering 21.0 percent more than non-trophy space, according to JLL’s 2015 Digital Skyline.
Average trophy rates in Manhattan in the first quarter of 2015 were $80.54 per square foot compared with $66.74 per square foot in non-trophy buildings. Direct rents for trophy-quality properties in the Plaza District reached $107 per square foot in the first quarter, with Central Park-view options averaging $146 per square foot.
“New York continues to attract both capital and talent from around the world, and this trend shows no sign of tapering off,” said Tristan Ashby, vice president and director of research in New York. “And while in an active phase, construction of new office space in Manhattan is lengthy, expensive and ultimately limited by available sites.”
Although some trophy-quality space will be returning to the market, new space in Manhattan’s most in-demand locations remains limited, with some opportunities several years away. High-end space in Midtown, in particular, has become increasingly hard to find. The chasm in vacancy rates is considerable: trophy-quality buildings in Midtown posted a vacancy rate of 8.4 percent in the first quarter of 2015 while the overall vacancy rate for Midtown assets stood at 10 percent.
Globalization of the New York City Investment Sales Market
Global investment is increasing in New York. While far behind the foreign investment levels seen in other major gateway cities such as London and Hong Kong, investor participation in New York real estate investment is running at slightly above 40 percent year-to-date, a marked increase from historical levels in the 15 percent to 25 percent range. Deflation in the Eurozone, economic uncertainty in Russia and the slowing of economic growth in China contribute to more foreign capital sources seeking economic and political stability to target the United States. New York is the top choice for many of these investors. Foreign and institutional capital typically takes a longer term investment view, and New York is particularly attractive given its track record of real estate asset appreciation.
Traditionally, investors from across the globe have focused on trophy assets. However, over the past few years, only a limited number of these trophy assets was for sale. This dearth of offerings is anticipated to continue.