CompStat: Manhattan’s Triple Digit Office Lease Rise, Department Store Challenges and Single Tenant Industrial Cap Rates

SKIP AHEAD TO

• Economic News Updates
• Manhattan Reaches New Heights for $100+ Deals, Dominated by Midtown Law and Financial Firms
• Retail Shines in 2025, but Department Store Struggles Dim the Outlook as News Breaks of Kohl’s Closures
• Single-Tenant Industrial Cap Rates Hit Two-Year High
• Renewals in 2025 Could Leave Industrial Tenants With Sticker Shock

Economic News Updates

• The Consumer Sentiment Index registered 73.2 in January, down 80 basis points from December;
• Members of the International Longshoremen’s Association and the U.S. Maritime Alliance announced a tentative labor deal in December on a new six-year master contract, averting any work stoppage for East and Gulf Coast ports;
• The average monthly share of paid full days working from home slipped to 26.9% in December, down from 29.5% a year ago;
• CPI gave conflicting indications at the end of 2024 with the index rising an annual 2.9% in December, up from 2.7% the month prior, while core CPI increased at an annual 3.2%, down from November’s 3.3%;
• Logistics managers are anticipating higher levels of both warehouse capacity and utilization in the coming months as reflected by December expansionary readings of 56.9 and 61.7, respectively;
• The FOMC reduced its benchmark rate by another 25 basis points in December, its third rate cut in 2024 and the same size as November’s reduction;
• Complicating the Fed’s rate cut schedule at year-end 2024 was the year’s final jobs report, which showed strong job growth (+256,000) and falling unemployment month over month to 4.1% in December, both of which could make rate cuts less likely in the coming months.

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Manhattan Reaches New Heights for $100+ Deals, Dominated by Midtown Law and Financial Firms

In 2024, an analysis by JLL showed that Manhattan office leasing surged to near pre-pandemic levels in 2024, as $100+ and $200+ per square foot leases spiked. CompStak data supported this trend showing that the share of leases starting at $100-$149 per square foot and $150 or more reached new heights in 2024, accounting for 10.3% and 6.8% of all deals respectively. Overall, the share of deals at $100 or more or greater was more than 2 times the share achieved in 2018, for example, in CompStak’s data. Within these deals, it is a small segment of Manhattan buildings that are benefitting from these deals at the top of the market. In 2024, the share of these triple-digit deals going to Midtown Class A deals in the Financial or Legal Services topped two-thirds, exceeding the comparable 57.8% share in 2018.Triple digit deals were also more highly concentrated in Midtown Class A deals from the financial or legal services sector as well as in Park Avenue or Grand Central submarkets in 2024 as compared to 2018.

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Retail Shines in 2025, but Department Store Struggles Dim the Outlook as News Breaks of Kohl’s Closures
Recent major retail news at the outset of 2025 included news of Kohl’s department stores announcing the closure of 27 underperforming locations nationally. The bulk of these changes are in California (10 stores)  as well as the closure of a significant fulfillment center and industrial warehouse, San Bernardino E-commerce Fulfillment Center.  Half of the closing California locations are located in the San Francisco Bay Area, including a 66,000-square-foot Kohls in Mountain View, California. However, according to CompStak’s data there are still at least four Kohl’s locations with an average transaction size of 88,600 square feet in that market to remain open and have active leases that have an average weighted average lease term of 291 months—well above the Bay Area market average of 209.4 months for active retail leases of 75,000 square feet. In addition, CompStak data reveals that three out of the four active Kohl’s leases in that market are paying rents below the estimated market rate for retail in their respective submarkets.

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Single-Tenant Industrial Cap Rates Hit Two-Year High

Average capitalization rates for single-tenant leased industrial properties sold were at their highest level in two years across major markets in the fourth quarter of 2024, according to CompStak data. Sales activity in this single-tenant occupied industrial market was reportedly growing at the end of 2024, according to a Northmarq analysis featured in Commercial Property Executive, with increasing sales volume but trends for cap rates suggest heightened perceived risk. CompStak data shows that the average lease transaction size in single-tenant occupied properties occupied at the time of sale have dipped slightly since Q4 2022, while cap rates saw their biggest quarterly jump in Q4 2024. Single-tenant industrial property cap rates increased each quarter from Q3 2023 with the exception of a minor dip in Q3 2024, increasing from an average 4.9% in Q3 2023 to a high of 5.8% at year-end 2024. Meanwhile, average lease transaction size of occupied single-tenant industrial properties sold has fluctuated between a spread of approximately 200,000 to 280,000 square feet, according to CompStak data, and has risen each of the past three quarters.

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Renewals in 2025 Could Leave Industrial Tenants With Sticker Shock

Warehouse tenants looking to renew their leases in the coming year could face hefty premiums as deals signed during the early days of the pandemic begin to expire. Despite cooling demand in the industrial real estate sector and less new construction, tenants in the NJ-North and Central, Los Angeles-Orange-Inland, and PA-Philadelphia-DE markets could see the biggest jump in their rent when renewing, according to CompStak data. Average Q3 2024 starting rents in the NJ-North and Central market stood at $15.83 per square foot, a 63.8% increase from starting rents for deals signed in 2020-2021 expiring this year. In the greater Los Angeles market the average starting rent in the third quarter was nearly as high at $14.91 per square foot, a 69.4% increase from starting rents for deals signed in 2020-2021 and expiring in 2025. And the third highest average Q3 2024 starting rent was in PA-Philadelphia-DE at $10.68 per square foot, a 90% increase from 2020-2021 starting rent averages for deals expiring in 2025, according to CompStak data. Based on rents for deals executed in 2020–2021 and set to expire in 2025, the largest percentage spread between current rents and starting rents in their market is in the PA-Philadelphia-DE market, with a 75.3% spread, followed by the Atlanta market at 52.7%. Hence, renewals in 2025 could be particularly pricey for tenants, despite recent moderation in rent growth and overall market softening.

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