MARKET INTEL: Analyzing Manhattan’s Most Valuable Office Deals, 2019 – 2022

SKIP AHEAD

Total Top 10 Deal Value is Highest Since 2019

Majority of 2022 Top Deals Had $100+ Starting Rents

Concessions on the Rise

Average Transaction Size and Lease Term Up From 2020 Levels

New Construction/Major Redevelopment Dominate Top Deals

FIRE Sector Inks the Highest Share of Priciest Deals

Midtown West Home to Half of Priciest Deals since 2019

2022 marked the 4th straight year CompStak has compiled a list of New York City’s top 10 most valuable office lease deals of the year for The Real Deal. 

While the top deals by value have changed a lot over the years, we uncovered some key findings about 2022:

• Half of all top deals came from FIRE tenants — its highest share in four years;
• An Education tenant (Touro College) and Retail Trade & Apparel (Tiffany & Co.) tenant appeared on the list for the first time;
• Most of the top deals occurred within newly-constructed buildings or major redevelopments, such as at One Madison Avenue;
• A majority of 2022 top deals had $100+ starting rents;
• Concessions awarded for top deals outpaced the market overall;
• The total combined valuation of 2022’s top 10 office deals slightly exceeded $6.5 billion, reaching its highest total value since the pandemic began.

2022’s top deals are indicative of office trends seen more broadly in Manhattan and in prime office markets across the country. While TAMI tenants especially those in the technology sector are pulling back on office space, two longtime New York City media and technology tenants, Fox/Newscorp, and IBM did secure long-term, high value deals in 2022. Outside of these transactions, financial services tenants increased their dominance of this list to a 50.0% share, the highest level since this list has been tracked. The FIRE sector has been more active in the market overall than other sectors over the last year and at times has taken advantage of the void that tech has created. KKR, for example, inked the 6th highest value 2022 deal, landing on the list after absorbing space shed by Facebook at 30 Hudson Yards.

Overall, these new elite deals increasingly favored major redevelopment and new construction. As such, they are reaching new heights in terms of starting rents, but are also offering substantial concessions including tenant improvement allowances and free rent periods to secure these high-value tenants and transactions. While many office occupiers stand on the sidelines yielding reduced space demand overall, the competition for prime tenants remains fierce.

Here’s a look back at everything CompStak has uncovered in the last 4 years.

TOTAL TOP 10 DEAL VALUE IS HIGHEST SINCE 2019

The total combined valuation of 2022’s top 10 office deals exceeded $6.5 billion, reaching its highest total value since the pandemic began. It increased dramatically from 2021’s $3.8 billion total and a $3.1 billion total in 2020. However, 2022 was still in the shadow of 2019, a mammoth year for deals in which the total value of the top 10 approached $8 billion. The high total value for 2019 was in part due to multiple billion-plus dollar deals at Hudson Yards (Warner Media and Cravath Swaine & Moore) and Google’s nearly $2 billion lease at 532 Washington Street in the Hudson Square submarket. 

2022’s total valuation was bolstered by two late Q4 extensions signed at 1211 Avenue of the Americas for Fox News and NewsCorp, which pushed an elite deal from Vista Equity Partners at 50 Hudson Yards out of the top 10*. Absent these last-minute additions to the list, the estimated total value of the 2022 top 10 would be $5.3 billion, still well above the total value of the Top 10 in 2021 and still the highest since 2019.

Notably, 2022 saw a relatively low degree of individual lease value diversity despite a much higher total valuation than in 2021. The Fox News/NewsCorp deal exceeds an estimated $1.5 billion over the full lease, while KPMG exceeds $1 billion. Combined, these deals accounted for 39.5% of the total 2022 valuation for the top 10 deals. But overall, half of the deals fell within the $500 – $750 million range, combining for 43.8% of the total valuation of the 2022 list.

MAJORITY OF 2022 TOP DEALS HAD $100+ STARTING RENTS

While the total valuation decreased from 2019 levels in 2020 and 2021, the average starting rent has increased steadily since 2019. In 2019, the average starting rent (weighted) among the top ten deals was $75.82/SF and increased to $104.23/SF in 2022, a 37.5% increase. This steep increase is due to an upswing in deals with $100+ starting rents. In 2022, seven out of the top 10 deals had starting rents of $100 or more as compared to just two in 2019. Starting rents over $100 have also increased in the rest of the Manhattan market over this same period; in 2019, 11.0% of all Manhattan office transactions had $100+ starting rents as compared to 13.4% in 2022. 

CONCESSIONS ON THE RISE

While starting rents for these top transactions have been on the rise, concessions awarded have been as well, mirroring and even outpacing trends seen in the rest of the Manhattan market. In 2022, the average work value remained in the triple digits for the third consecutive year topping $135/SF. In 2019, two As-Is transactions depressed the average work value. Excluding As-Is transactions, work values increased a considerable 39.4% from 2019 for this list.  Similarly, free rent awarded averaged 16.1 months for 2022’s top deals which rose above 2019’s level by more than 10 months.  These concessions were more robust than provided in Manhattan overall: in 2022, the average work value was $95.52/SF, an increase of 31.5% from 2019 and free months averaged 10.8 months, a 12.2% jump from 2019’s levels. 

AVERAGE TRANSACTION SIZE AND LEASE TERM UP FROM 2020 LEVELS

The average lease term for the top 10 most valuable deals has grown each year since 2020 and in 2022 was nearly 19 years. This exceeded the 2019 average term length by 5 months.

Average transaction size for a top deal in 2022 was just above 380,000 square feet, which exceeds both the 2021 and 2020 averages but is well below the 2019 average of nearly 575,000 square feet. Excluding the massive 1.1 million square foot Fox/NewsCorp renewal, the average transaction size for a top deal in 2022 was just under 300,000 square feet. Compared to previous years, this average is up nearly 100,000 square feet from 2021, up almost 50,000 square feet from 2020, but still down 275,000 square feet from 2019.

Part of the reason for the coalescence in individual top deal values in 2022 was due to size and term similarities. Half of top deals in 2022 had transaction sizes between 200,000 and 300,000 square feet and term lengths between 20 and 22 years.

NEW CONSTRUCTION/MAJOR REDEVELOPMENTS DOMINATE TOP DEALS

Newly-constructed buildings and major redevelopments dominated 2022’s top deals. New construction in Hudson Yards helped populate the list once again accounting for four of the top 10 deals, while another two high ranking transactions were inked at SL Green’s One Madison redevelopment. This marks the most top deals within newly-constructed or majorly redeveloped buildings since 2019.

Since 2019, 70% of all top deals within newly-constructed buildings have been in Hudson Yards. And deals in newly constructed buildings have been dominated by FIRE tenants, who made up 4 of the 6 top deals in new construction or major redevelopments in 2022. Since 2019, TAMI and FIRE tenants have made up 81.3% of all top deals within new construction or major redevelopments. 

FIRE SECTOR INKS THE HIGHEST SHARE OF PRICIEST DEALS

FIRE and TAMI sector tenants have accounted for the lion’s share of top deals since 2019, making up 60.0% of all top deals. 2022 continued this trend, with 70% of top deals inked by these two sectors. However, TAMI’s influence paled slightly from 2020’s level—CompStak recently noted how this sector continued to lease office space in the early part of the pandemic even as other industries scaled back. FIRE tenants dominated the 2022 list, taking half of the top deals compared to just 2 of 10 in 2021.

MIDTOWN WEST HOME TO HALF OF PRICIEST DEALS SINCE 2019

Since 2019, Midtown has been the largest recipient of priciest deals according to four years of top ten rankings for The Real Deal. Top deals have concentrated especially on the West Side of Midtown, including in Hudson Yards and Sixth Avenue. Notably, Hudson Yards took a plurality (40%) of top deals in 2022, followed by Gramercy Park/Union Square and deals in One Madison Avenue (30%) and Sixth Avenue, thanks in part to Fox/Newscorp’s 1.2 million-square-foot renewal (20%). Since 2019, Midtown has accounted for 65.0% of ranked priciest deals, followed by Downtown and Midtown South which have both accounted for 17.5% each of all top ranked deals.

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