‘Flight to quality’: Landlords celebrate premium-lease boom in 2022

As Manhattan’s office market wobbles unsteadily into 2023, with rising availability and shrinking corporate footprints, certain landlords have at least something to celebrate: a record number of new leases signed for more than $100 per square foot.

The year 2022 saw 190 leases in the C-note club, up from 164 in 2021, according to a new survey from JLL.

According to JLL’s Year-End Recap, leases signed at $100-and-up per square foot totaled 6.1 million square feet, more than double the amount of premium-priced floor space signed in 2021.

The report by JLL vice-chairman Cynthia Wasserberger, who worked with colleagues Carlee Palmer and Margaux Kelleher, cites a number of eye-popping stats:

• An unprecedented fifteen transactions for a total 280,000 square feet had starting rents of $200-plus. At SL Green’s One Vanderbilt, two different smaller leases hit $300 psf.
• Leasing was dominated by “flight to quality” moves to brand-new towers and to older ones that were significantly upgraded. In fact, 62% of the priciest new leases were in such properties.
• Landlords who landed the most premium-rent tenants were Brookfield Properties with 16 deals totaling 1.6 million square feet; SL Green with 17 deals for 842,000 sf; Related Companies with 11 deals for 703,000 sf; and RFR Realty which closed 19 deals for 386,000 sf.

JLL didn’t name specific tenants in the $100-and-up club. But mega-deals reported in 2022 included GFL Environmental at SL Green’s One Vanderbilt; IBM at SL Green’s One Madison; Global Relay UA at the Durst Organization’s 1155 Sixth Ave.; Vista Equity Partners at Related’s 50 Hudson Yards, and PDT and Deutsche Bank at Related’s Deutsche Bank Center at Columbus Circle.

Not every sky-priced lease was for less space than a tenant had previously, but all reflected the overwhelming “flight to quality” that gives owners of Class A-plus properties a huge advantage over the rest of the field.

Wasserberger called the premium-lease boom “further evidence of resiliency and relevance in top-of-the-market properties.”

“Many tenants elected to commit to higher-end space while focusing on right-sizing their operations post-COVID,” Wasserberger said “The trend of ‘paying more for less’ and prioritizing quality over quantity benefitted top properties more than ever.”

“Right-sizing” usually means downsizing. The classic 2022 case was KPMG’s 450,000 square-foot lease at Brookfield’s Two Manhattan West. The year’s largest single new lease actually represented a loss of 350,000 square feet from KPMG’s current three locations.

How much the firm is paying for its new digs is not known, however.