Cushman & Wakefield today released fourth quarter statistics for the Manhattan commercial real estate market that show year-end leasing activity reached the highest total since 2000. On the strength of the new leasing activity, which accounted for 30.1 million square feet, the vacancy rate dropped to 9.1 percent, down from 10.5 percent a year ago.
With year-over-year leasing exceeding last year's total by more than 16 percent, the vacancy rates in each of Manhattan's three submarkets remained three of the four tightest Central Business Districts in the nation, with Midtown South leading the way with a 6.4 percent vacancy rate. Manhattan is the largest CBD in the nation, with a total of 393 million square feet and based on the space tracked by Cushman & Wakefield, it accounts for more than 25 percent of all the CBD office space in the nation.
The strong leasing activity this year was driven by 51 transactions over 100,000 square feet, which is the highest total since 2004.
The vacancy rate year-over-year for class-A office space decreased 1.4 percent to 9.6 percent. The class-B vacancy rate dropped the most at 1.5 percent year-over-year and ended the year at 8.0 percent. The class-C vacancy rate decreased 1.1 percent and ended at 8.6 percent.
Overall average asking rents in Manhattan registered $57.23 per-square-foot at the end of the year, up $2.89 per square foot or 5.3 percent from $54.34 a year ago and the highest asking rent since August 2009. The largest increase in rents was recorded in the most expensive market in the nation, the Midtown class-A market, where average asking rents reached $71.22 per square foot, up 5.9 percent from a year ago.
Net absorption, which is the measure of the net change in occupied space over a given period of time, was positive 5.2 million square feet. That total is the highest full year absorption in Manhattan since 2005 and the first time since 2000 that all four quarters of the year reported positive absorption.
"2011 has been a strong leasing year backed by the revival of Downtown and the World Trade Center and the record number of large lease transactions around Manhattan," said Joseph R. Harbert, Cushman & Wakefield's Chief Operating Officer for the New York Metro Region.
The Downtown market, which saw the strongest leasing volume in more than a decade, ended the year with a vacancy rate of 9.5 percent compared to 11.5 percent a year ago. The submarket saw asking rents increase $1.10 per-square-foot to $39.88 per-square-foot from $38.78 per-square-foot. The class-A asking rents rose 3.9 percent to $43.36 from $42.68 a year ago.
Downtown had two major leases at the new World Trade Center. Conde Nast leased 1.0 million square feet at One World Trade Center and the City of New York leased 600,000 square feet at Four World Trade Center. In addition, MSCI, Inc. and Wilmer Cutler Pickering leased a total of more than 336,000 square feet at Seven World Trade Center, which is now fully leased.
The market with the fastest asking rent growth was the Midtown South class-A market, where the vacancy rate stood at 4.6 percent at the end of 2011 and the asking rents increased 14.6 percent from a year ago. The class-A asking rent at year-end was $57.44 from $50.13 a year ago.
The Midtown market, which ended the year with a 9.6 percent vacancy, down 1.0 percent from 10.6 percent a year ago, saw an increase in class-A asking rent of 5.9 percent to $71.22 from $67.27 a year ago.
Following a strong 2011, Cushman & Wakefield pointed to remaining uncertainty in the global economy that could slow activity, but noted recent employment growth and the strength of the local technology sector as positives for 2012.
"The outlook is clouded and new leasing activity is unlikely to approach the strong levels of 2011. That being said, a positive we can look to is a technology sector that is rapidly growing and continuing to hire," said Ken McCarthy, senior economist and senior managing director at Cushman & Wakefield.
By industry, financial services accounted for 29.7 percent of all leasing by year-end, followed by information/media at 25.3 percent, government, education and social services at 9.9 percent and apparel at 9.0 percent.
The volume of property sales closed in 2011 in Manhattan is the third highest total on record, exceeded only by 2006 and 2007. By year-end, $25.8 billion in sales were completed, with $3.1 billion currently under contract, compared to $13.7 billion closed in 2010. This represents an increase of 88 percent.
The second half of 2011 had a total of $12.7 billion in sales recorded on top of the first six months of the year that totaled $13.1 billion. The highest volume on record in Manhattan occurred in 2007, when the total hit $47.8 billion.
Class-A office space has accounted for more than $9.4 billion or 37 percent of the total property sales in 2011, followed by other office space at more than $3.8 billion, hotel property at more than $3.6 billion, land/development at nearly $3.6 billion and multifamily at nearly $3.4 billion. Hotel and multifamily properties had the largest year-over-year percentage increases in sales, with 158 percent for hotel and 145 percent for multifamily.
Institutional investors led the way in total acquisitions this year, accounting for 36 percent of total sales, followed by real estate investment trusts (REITs) at 26 percent, private capital at 26 percent, and foreign investors at 9 percent. In 2010, private capital led the way with 35 percent, followed by REITs at 21 percent and institutional investors at 15 percent.
A significant component of the increase in Capital Markets activity year-over-year was a surge in recapitalizations, which accounted for $9.1 billion or 35 percent of the total sales, compared with 19 percent in 2010.
Significant property sale transactions this year included the recapitalization of 1633 Broadway, a 2.5 million-square-foot class-A office tower. Paramount Group Inc. recapitalized a 49 percent interest in the property. Cushman & Wakefield Sonnenblick Goldman arranged the transaction. Also, 601 West 26th Street, a 2.3 million-square-foot tower was purchased by RXR Realty LLC.
The Manhattan retail market performed strongly through the end of 2011. Both the Upper and Lower Fifth Avenue corridors saw significant asking rental rate increases from last quarter.
Upper Fifth Avenue, from the north side of 49th Street to 60th Street, had a fourth quarter average ground floor asking rent of $2,338 per square foot, a 12.7 percent increase from last quarter. The Lower Fifth Avenue market, from 42nd Street to the south side of 49th Street, continued to see increased demand and strong pedestrian foot traffic. Luxury brands have been active in this corridor, including Ted Baker, which leased 12,000 square feet at the corner of Fifth Avenue and 48th Street. Asking rents in the Lower Fifth Avenue corridor increased 50 percent since the third quarter, to a record $865 per square foot.
Times Square also reported a significant increase in asking rents, up 15 percent to $968 per square foot. Contributing to this increase was a lease of a below market piece of space that had been on the market for a long time, by SuperDry, a men's and women's apparel store. Asking rents in the "Bowtie," from 42nd to 47th Street on Broadway and Seventh Avenue, continued to exceed asking rents in the Times Square market, and are currently at $1,521 per square foot.
In the traditionally strong SoHo market, which stretches from West Houston to Grand Streets and West Broadway to Broadway, asking rents slightly decreased in the fourth quarter to $288 per square foot, however asking rents on the prime streets like Prince, Spring and Broadway exceeded $500-$600 per square foot.
The Madison Avenue submarket, which stretches from 56th Street to 72nd Street, has seen a fundamental strengthening in 2011, as availability decreased 0.5 percentage points to 11.7 percent this quarter and asking rents increased to $908 per square foot, up 13.6 percent over the prior quarter.
The Third Avenue and Upper West Side submarkets showed strong fundamentals, with a slight decrease in asking rents from last quarter due to higher priced space being leased during the quarter.