Decoding NYC Office Space Lease Rates: Location, Quality, and Market Trends

Office space lease rates in NYC fluctuate significantly based on various factors. Lease prices currently span from economical mid-$30s per square foot in the Garment District to premium rates that can be well over $100 per square foot in Midtown East. Such variations are attributed to several key factors: the office's location, the building's classification—Class A, B, or C—and the inherent quality of the individual office. 

Location

The area surrounding Grand Central Terminal benefits from the ease of commuting, including from Westchester and Connecticut, and now, with the recent opening of the Long Island Rail Road extension, Long Island as well. The Grand Central hub is without comparison in NYC, and as a result, landlords with offices for lease here have greatly benefited. By contrast, at the southern tip of Manhattan, offices in the Financial District lease at lower rates, as the area is less accessible for many office workers. However, companies prioritizing lower office rent over location factors may find that the Financial District offers many suitable options, especially for those companies with southern Brooklyn and Staten Island employees.

Quality buildings

Every submarket in NYC has a variety of office buildings that differ significantly in quality. For example, the Garment District is home to a high density of Class C buildings but also has a few Class A office buildings like One Penn Plaza and Nelson Tower. It's safe to say that the best office buildings can be found on the avenues, while lesser buildings tend to be on the side streets. These side street buildings are often older and lack many features tenants desire. 

One inherent difference between Avenue buildings and Side-street buildings -- and a reason why the offices within them are more desirable -- is that Avenue buildings occupy the corner of the blocks. As a result, these buildings will have many more corner offices for lease. Everyone prefers an office with windows on at least 2 sides; the more light, the better. It would be unusual for a tenant to request a dark office with very little natural light. So, if it's quality and natural light that you're after, you should prioritize Avenue office buildings located on the corners.

Other things to consider are the general qualities of the building. What's the lobby like? Does it have professional and courteous staff? When was the lobby last renovated? Does it give a good first impression? Are there a sufficient number of elevators? What are the elevator cabs like? How are the corridors and bathrooms? The list goes on. 

Quality office space

While the quality of the building is vital in understanding rates for office space in NYC, the quality of the individual office space for lease is also essential. There isn't a category system to grade the quality of individual offices -- like there is for buildings -- but here are a few things that will affect the price of an office.

First and foremost, the office's location within the building plays a role in the value of the office space. Typically, a high floor is worth more than a low floor; a street-facing office is worth more than a rear-facing office; a corner unit is worth more than a unit with only one side of windows; an office located close to the elevators might be worth more than one that is a further walk; and a new prebuilt office space will be worth more than a second generation office space.  

Navigating New York's office leasing market can seem overwhelming -- if it doesn't, you might only be skimming the surface. You can do it yourself, but who knows where you'll end up. It's essential to have a clear and deliberate strategy.

Find an experienced real estate broker

We recommend hiring a knowledgeable commercial real estate expert to assist you in finding an office for your company. The broker should be familiar with the office buildings and the general pricing in your target location, grasp current office availability in NYC, and be experienced enough with lease negotiations to guide you through the entire process. The easier they make it look, the better they are. 

It's always helpful if you do a little homework, too. Understanding the New York office leasing process -- from knowing when to start your search to security deposits and Good-Guy Guarantees to reviewing the necessary lease documents with an attorney -- will make everything feel much more manageable and less stressful. It's good to know the norms and what to expect. A proficient real estate broker can explain these concepts, set expectations, and walk you through the entire process.

Timing your office move

Many companies underestimate the amount of time it takes to find office space in NYC. Identifying the right office is just the first step. After you find an office that meets your requirements, you'll need to submit a proposal to lease it, negotiate a few rounds with the landlord or their broker, review the lease documents (which are typically around 60-80 pages), and meet the landlord's insurance requirements and, of course, the physical move. 

In theory, this process could happen quickly. However, many parties are involved, each with their own schedules and priorities. The landlord might be on vacation; their broker might be working on three other office space deals that take precedence; the attorney might have a few things in the cue before your lease. So expect delays. 

How soon to start looking for office space depends on several factors:

1. How big is your target office space? A large office space might require more lead time than a small one. A raw office space or one in "white box" condition will also require more lead time than a prebuilt office space. Landlords are generally more motivated to rent large offices in their buildings, so they may agree to delay the start date for a longer period of time in order to secure a good-quality tenant. 

2. How long of a lease are you planning to sign? Typically, a landlord will be more likely to delay the start date to accommodate a tenant if the lease term is longer. It's easier for a landlord to accept a 3-month gap if the tenant is signing a lease term of 5 years versus 2 years. 

Most companies have a strict budget and a definitive timeline. It would be easier to meet all your office needs if we didn't have either. 

Flexibility with your requirement

Despite the pandemic and remote work schedules, NYC remains home to countless companies that require office space, which means that the office space market in New York is competitive, especially if your company is searching for a high-quality office building in a sought-after location. 

Everyone is familiar with searching for an apartment or home, and there are similarities with searching for office space. As a homebuyer or renter, you have a list of 'wants': a great neighborhood, close to the best schools, three bedrooms, a separate office, a garage; the list goes on. Getting every item on our want list often requires a big budget. In the end, nothing is perfect, so we compromise a little bit. 

It's the same with NYC office space. Ask yourself what is most important to you. It could be the location, the price, or something else. What if you found an office within your budget with the perfect layout and amenities, but it's 4 or 5 blocks beyond your target area? Or you may love a particular office building in the Flatiron District, for example, but the only available office spaces would need to be built to your standards, and you need to move in ASAP. Could you sacrifice the perfect layout for the ideal location? 

These are the questions that companies looking for office space in NYC often must ask themselves. 

We've touched on some of these points already, but many factors influence the cost of NYC office space. Here is a list of a few key points:

• Prime NYC Office Locations: It cannot be overstated: Office rent in NYC is primarily based on the location of the building. If the exact same office building were for lease on Fifth Avenue in Midtown and 10th Avenue in Hell's Kitchen, the office space for lease on Fifth Avenue would command a higher price. The difference between the office rent in one building versus the other will depend on many other factors.

• NYC Building Classifications: Lease prices vary significantly by building Class. Don't worry too much about what determines a Class A, B, or C building; just know that Class A office space rents are almost always more per square foot than Class B and C offices. Furthermore, premium office buildings with high-end amenities like One World Trade, One Vanderbilt, or The Spiral in Hudson Yards will cost more per square foot than basic, no-frills office buildings.

• Lease Length:  The lease term a tenant and landlord agree upon can impact the office space cost. If your company rents office space for 1-2 years -- which is considered a short-term lease in NYC -- a landlord might be less motivated to rent the office because they must find a new tenant in a couple of years and spend capital updating the space for the next tenant. Therefore, landlords usually are less negotiable and stick to a higher price per square foot. A tenant who signs a 3- to 5-year lease should receive the most favorable terms. That's the sweet spot.

• Landlord's Construction Work: Consider this from a landlord's perspective. Suppose a company looking for office space tours a Midtown office they decide they want. They offer to accept the office in 'as-is' condition. In this scenario, the landlord will be more agreeable to a lower price per square foot because they will not have to pay for costly renovations, and they can pass those savings along to the tenant. It's a win-win. But the trick is to find an office space suitable for your company's needs in its current condition, which sometimes feels like you're looking for the right puzzle piece. 

• Turnkey NYC Office Spaces: Furnished office spaces and move-in-ready offices in New York City are usually priced higher than ones where more of the onus is on the tenant to furnish the office and get it up and running for their first day. Many tenants are willing to pay a premium for turnkey office spaces ready for immediate occupancy, saving them the time and hassle of outfitting and setting up an office for their employees. Thus, the fit-out and condition of office spaces can influence the office space cost in NYC, but this additional expense may be worth it, giving you more time to concentrate on doing your 'real' job.

• New York Market Conditions: The factors influencing NYC office prices listed above are on a micro level; however, overall market conditions play a significant role, too. Unlike the stock market, office prices change gradually. Think of the office market as the tortoise and the stock market as the hare; the stock market is fast-paced, while the office market is slow-paced. Economic shifts can significantly impact office prices, as evidenced by the 2008 housing crisis and the early 2000s dot-com bust. More recently, the Covid-19 pandemic has also notably impacted NYC office space pricing.

We've explored many factors influencing New York City office lease rates. And office leasing rates vary considerably. Locations like the Garment District offer more economical options for companies on a tight budget, while sought-after areas like Midtown East command higher prices per square foot. The key points to remember are the location of the building and the location of the office within the building, the office building's classification (Class A, B, or C), and the quality of the office space.

When navigating the NYC office leasing market, we recommend working with a knowledgeable real estate broker who can guide you through the office leasing process. You'll have a lot of questions along the way, and having an expert to answer them will be invaluable. Understanding the timelines, security deposits, and lease negotiations is essential. 

Flexibility is important. Companies must balance their desires with the constraints of office space availability in New York. Just like searching for an apartment in NYC, the more you can stretch your budget, location, and timing, the more options you'll have in this competitive office market.