Average office space rent prices have risen sharply, but lawyers should continue to find values in downtown Manhattan despite changes in the overall market.
It’s common knowledge that downtown Manhattan office space is the most affordable in the borough. But like most areas in Manhattan, office prices have been rising steadily. Notwithstanding, traditional users of office space like law firms should continue to find value rentals for several years to come.
Economics of Downtown Office Space
Rent in downtown Manhattan hit historical lows after the 9/11 terrorist attacks and did not fully recover prior to the recession of 2008. But according to commercial brokerage giant Cushman & Wakefield, between 2012 and 2015 the average rental price in downtown increased by approximately 47% during this period to $58 per square foot.
“Midtown south and downtown were about price relief from Midtown,” said Mary Ann Tighe, chief executive officer of the New York/tri-state region for CBRE. According to Tighe, 2014 was the year that trend ended definitively.
The sharp increase is attributable to space shortages in neighborhoods to the North, which drove tenants into the area. While some experts had predicted rental rates to come down as the 2.8 million square foot One World Trade Center office project came online, it has actually had the opposite effect. With tech and media tenants signing deals at rates that were above the average for the area, landlords in other Class A buildings were encouraged to raise rents as well, which has had a trickle down effect on rents in lesser quality buildings.
Even with Higher Rents, Downtown is Still a Bargain Compared to Midtown
Even though the average rent is increasing in downtown, space is still far less expensive when compared to rent prices in Midtown.
According to a market research study by Savills Studley, mid-2015 marked the first time since the recession that downtown rents rose above $50 per square foot. However, in certain Midtown neighborhoods like the Plaza District, small private equity companies have driven leasing rates up to $100 per square foot.Downtown prices remain a bargain compared to Midtown, even if downtown rates are still rising Click To Tweet
Although the downtown rates will likely increase slightly due to space becoming less available, costs are expected to remain well below that of Midtown.
The Financial District Should Continue to be a Great Value for Lawyers
With lots of new space coming on the market as a result of One World Trade Center, experts expect that companies will leave behind “older generation space” for newer and pricier offices. But traditional spaces that may not be best suited for, say, a technology or media company, tend to work exceptionally well for law firms.
Some downtown landlords will either spend the money for full scale renovation projects on these older buildings, but others will forgo the expense and simply offer leased space at a better rates to the types of tenants who benefit from and/or prefer traditional office space. It will be in these buildings that lawyers will continue to find office space at a discount to the market.