by Zoe Hughes
May 10, 2016

NYC Market: Commercial Tenants Face Massive Rent Hikes

Tenants in New York with leases set to expire in 2016 face massive increases in rent, potentially triggering tenants to move locations, according to an MSCI report.

New York real estate tenants facing lease expirations this year could be looking at rent hikes of up to 42 percent, according to a recent MCSI report, a potential trigger for relocations across the city.

“Brokers report that Midtown Manhattan tenants have recently bristled at such increases, enough to make them consider relocation to Hudson Yards, Lower Manhattan, or other points south,” the report states.

Five percent of the New York market—which includes the five boroughs, northern New Jersey and Long Island—has leases set to expire in 2016, with contracted rents significantly under current market rates. Financial services firms make up about a quarter of city leases, leaving them particularly exposed.

And while more than two-thirds of commercial real estate leases in New York aren’t set to expire until at least 2020, at current rates they face increases of 28 percent, more than twice the national average.

MSCI’s U.S. property income risk and performance report provides a telling analysis of the embedded risks within lease terms, not just for New York but across the U.S., spanning property sectors and industries.

Key highlights from the report also include:

  • The average lease term across the U.S. is 4.9 years compared to 6.8 years in New York. However, in New York, financial services have just 5.4 years remaining and have contracted rents 41 percent below market level.
  • Retail tenants in New York are expected to see rent hikes of 52 percent when their leases expire, compared to just 20 percent increases nationally.
  • Leases expiring in New York in 2020 and beyond face rental increases of 32 percent.

“[Certain industries, owing to their lease terms, are] potentially more vulnerable to a cyclical downturn, should it occur before the close of the decade,” according to the report. “[But] even without a downturn, the flipside risk is the sticker shock of a rent increase that approaches 20, 30, or even 40 percent.”

New York real estate tenants facing lease expirations this year could be looking at steep rent hikes—a potential trigger of relocations across the city.

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