Midtown's Class-A Office Buildings Are Falling Back To The Pack

Since the Great Recession at the end of last decade, Manhattan's office product has become less and less stratified, even as new products like Hudson Yards have delivered.

Average asking rents in office product have surpassed the levels they reached at their peak in 2008 in every sector of Manhattan but one: Class-A office buildings in Midtown, which remain 10% less expensive in the first quarter of 2017 than they did in the third quarter of 2008, according to a report by Colliers International.

Class-A buildings in Midtown South and Downtown have surpassed 2008 values considerably, as have Class-B and Class-C buildings in all three submarkets. The upshot is clear: less of a premium is being placed on the cream of Manhattan's office crop than in previous cycles.

Because Class-A buildings in Midtown make up a full 40% of all Manhattan office product, its lack of growth has had an outsized effect on the borough's overall numbers. Even as Midtown South and Downtown saw 30% increases in asking rent since 2008, the borough's total average has increased only 0.8%.

Times have changed so much that Class-A office in Midtown South now has a higher asking rent on average than in Midtown itself, surpassing the more central market only in the most recent quarter. Class-B product has been more expensive in Midtown South than Midtown proper since 2014.

Colliers explains the changes in relative value with the emergence of the technology industry and the changing demands of the Millennial workforce. They place less of a premium on proximity to major financial institutions and more on neighborhood amenities and office space flexibility.

Even as Hudson Yards and its super-luxury competitors continue to deliver, Class-A office availability rates remain higher than those of Class-B and Class-C, which has caused Class-A landlords to offer more and more concessions to fill space.