Manhattan Office Leasing Posts Solid Year With 23.2 Million Square Feet Leased

Cushman & Wakefield today released fourth quarter statistics for the Manhattan commercial real estate market that show a total of 6.4 million square feet of leasing activity, the highest quarterly leasing level this year. The year closed with a total of 23.2 million square feet leased and a vacancy rate of 9.4 percent.

The solid leasing year follows a year in which Manhattan office leasing reached the highest total since 2000, with 30.1 million square feet of new leasing activity. At year-end, the overall average asking rent in Manhattan increased 4.0 percent year-over-year to $59.54 per square foot from $57.23 per square foot. The Manhattan class-A direct asking rent, which totaled $70.15 per square foot at the end of the quarter, surpassed the $70 per square foot mark for the first time since July 2009.

The Midtown South market still ranks as the tightest Central Business District in the nation, leading the way with a 7.1 percent vacancy rate, up 0.6 percent year-over-year. 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.

Manhattan continues to be a safe haven for investors despite uncertainties in the global economy. Glenn Rufrano, Cushman & Wakefield President & CEO commented, "Global investment volume has almost doubled from a low of $402 billion in 2009 to $762 billion in 2012. The volume in New York City grew eight-fold during the same time period."

This lack of clarity with the economy will continue into 2013, according to Ken McCarthy, Chief Economist. "Slow growth remains the norm nationally and locally," he said.

While 2012 was a year of uncertainty, the popularity of the Midtown South market contributed to a solid leasing year. The market had the largest increase in average asking rent year-over-year, which can be attributed to the more than 360,000 square feet of space that came into C&W's statistical sample in the second half of the year (space available within a six-month time frame), including space at 770 Broadway, 110 Fifth Avenue, 401 Park Avenue South, and 350 Hudson Street. At the close of the quarter, the average asking rent in the Midtown South market totaled $49.69 per square foot, up 8.3 percent year-over-year.

"Given the explosion in asking rents combined with vacancy rates below equilibrium, tenants have started looking for value beyond the traditional boundaries of Midtown South," said Andrew Sachs, a Cushman & Wakefield Executive Director.

The Downtown market is the only Manhattan submarket that had a year-over-year decrease in the vacancy rate. At the end of the fourth quarter, the Downtown vacancy rate was 8.8 percent, which is down 0.7 percent or 9.5 percent from a year ago. The average asking rent has also decreased, dropping 0.8 percentage points to $39.58 per square foot from $39.88 per square foot a year ago. The class-A asking rent totaled $45.16 per square foot, up 1.8 percent year-over-year.

"Evolving demographics combined with the completion of the highest quality new product in the country have elevated Downtown's status to a 'destination' office market," said Robert Constable, a Cushman & Wakefield Executive Director.

The Midtown market had the largest increase in the vacancy rate from last year, with an increase of 0.7 percent. At the end of the quarter, the vacancy rate was 10.3 percent, up from 9.6 percent a year ago. The average asking rent closed at $67.36 per square foot, up 3.0 percent year-over-year and the class-A asking rent closed at $72.54 per square foot, up 1.9 percent year-over-year.

"As the political and economic environment gains clarity, we will see the re-emergence of large corporate and financial service occupiers in the market in the second half of 2013," said Sachs, who also presented the Midtown market at C&W's fourth quarter press conference.

The retail market across Manhattan, and in particular Fifth Avenue, continues to be vibrant.

"The continuous transition along Fifth Avenue from 57th Street to 34th Street tells a tale of the chic Upper Fifth Avenue corridor extending south," said Joanne Podell, a Cushman & Wakefield Executive Vice President.

The Fifth Avenue corridor above 49th Street is a tight market, where availability remains low and asking rents remain high, according to Podell. The span below 49th Street has seen several new additions of space to the market with an obvious rise in asking rents. From last year, the region between 42nd and 49th Streets has seen a 12.6 percent increase in rents, with the average asking rent closing the year above $1,000 per square foot.

Steve Kohn, President, Equity, Debt & Structured Finance, discussed Manhattan sales volume and cited a flurry of activity occurring in the fourth quarter. "Thank goodness for the fourth quarter," he said. "42 percent of the total volume in 2012 occurred in the fourth quarter, and as a result the total sales volume this year surpassed the 2011 total."