Manhattan office tenants are in for sticker shock over the next 10 years, according to a new report by CB Richard Ellis. The Los Angeles-based real estate services firm projects that steady employment growth combined with little new office construction will drive office rents up throughout the city.
The report predicts that roughly 500 office tenants facing lease expirations between now and 2016 should brace themselves for base rents as much as 60% higher than their initial lease. Such a projection assumes annualized growth of 4.5% over the last 10 years versus 3.4% inflation recorded during the same time period.
“There is now a substantial disparity between construction costs and market rents, as well as a lack of Midtown sites,” reads the report. “Even with continued rent increases, the ‘benchmark’ rents required to justify new construction will not be achievable outside of prime midtown locations, where there are no available sites. The result is a looming shortage of supply.”
New York City’s total number of office-based employees is currently 1.4 million, having grown 0.6% during 2005. That percentage is expected to increase by 1.4% next year, however. “Priced out of Manhattan, these tenants will be forced to move to a finite number of alternative locations including midtown South, the New Jersey waterfront, outer boroughs, downtown or out of the region altogether,” says the report.
CB Richard Ellis was hired by developer Larry Silverstein to handle leasing in his 1.7 million sq. ft. office tower near Ground Zero, 7 World Trade Center. The majority of the building remains empty though a handful of leases have been signed in recent months.