Cushman & Wakefield today released third quarter statistics for the Manhattan commercial real estate market that shows that new leasing activity reached 18.4 million square feet (msf), an increase of 9.7% year-over-year.
The total new leasing activity through three quarters was met with a 10.6 percent overall vacancy rate, a slight increase from 10.4 percent last quarter, but a healthy rate that is below the national average of 13.5 percent.
The overall average asking rent in Manhattan increased 6.3 percent year-over-year to $62.51 per square foot. The Manhattan class-A direct asking rent totaled $68.40 per square foot, a slight increase from $68.31 from last quarter and a 2.0 percent increase year-over-year.
“Vacancy rates and asking rents don’t tell the story of Manhattan leasing velocity,” said Ron Lo Russo, President of the New York Tri-State Region, referring to a strong pipeline expected to close 2013 on a high note.
Lo Russo cited that there are a total of 71 tenants currently in the market that have over 10,000 square feet of requirements and will have leases expiring in 2014. Together that accounts for a total of 3.2 msf.
Manhattan leasing activity overall has increased nearly 10 percent year-over-year. Additionally, there have been a total of 48 transactions with base taking rents of $100 per square foot or more completed thus far in 2013. In comparison to last year, 35 transactions were completed for all of 2012.
All three major Manhattan submarkets saw increases in average asking rent year-over-year, as well as increases in new leasing activity. A large contributor to the strength of new leasing activity in 2013 is attributed to the technology sector, which continues to be an important driver for the City. The financial services sector, however, continues to remain flat. Since August 2011, employment in the financial services sector is down 7,300 jobs.
“Lagging financial services employment is having a negative impact on the office market,” said Ken McCarthy, Chief Economist.
The Midtown market, which has a vacancy rate of 11.4 percent, has seen healthy new leasing activity this year, with an increase of 17.6 percent year-over-year. Of the 18.4 msf of new leasing completed overall in Manhattan, more than 11.4 of that activity occurred in Midtown. Within the submarket, Sixth Avenue/Rock Center has been a leading neighborhood in new leasing activity.
“Sixth Avenue is back,” said David Rosenbloom, Executive Director.
With 1.8 msf of new leasing activity taking place in the Sixth Avenue/Rock Center neighborhood to date, the total is already nearly equal to all of 2012, which had 1.9 msf of new leasing activity. The neighborhood only trails Grand Central, which had a total of 1.9 msf of new leasing activity this year.
Midtown closed the quarter with an average asking rent of $68.41 per square foot, which is up 3.0 percent year-over year. The class-A asking rent closed at $72.99 per square foot, up 1.7 percent year-over-year.
Midtown South continues to be the tightest Central Business District in the nation, with a vacancy rate of 7.6 percent, up slightly from last quarter and 1.1 percent year-over-year. The average asking rent closed at $60.34 per square foot, which is up nearly 23 percent year-over-year and represents the most significant increase of the three major Manhattan submarkets.
“The Midtown South class-A asking rents have soared to a record high,” said Rosenbloom.
Last quarter, and for the first time since C&W started tracking the market, the Midtown South class-A average asking rent exceeded Midtown class-A average asking rent. At $74.55 per square foot, Midtown South continues to have a higher average asking rent. That total reflects new construction entering the market, which is driving average rents up. It should be noted, however, that the Midtown South class-A market is considerably smaller than the Midtown class-A market.
The Downtown submarket has also seen healthy leasing activity this quarter, which has driven the vacancy rate down. Including renewals, leasing activity totaled 1.6 msf and is above the 10-year quarterly average (1.5 msf). The vacancy rate is now 10.9 percent, down from 11.6 percent last quarter. The average asking rent closed the quarter at $46.00 per square foot, an increase of 15.5 percent year-over-year. The class-A asking rent totaled $50.71 per square foot, which is up 12.2 percent year-over-year.
“Lower Manhattan is New York’s value play,” said Robert Constable, Executive Vice President.
Downtown continues to be an interesting submarket to track, with new construction taking place, an increase in residents, tourists, retail stores and a more diverse tenant base than ever before.
“Downtown has exceeded all expectations and has established itself as a 24-hour a day, live, work and shop destination,” said Alan Schmerzler, Executive Director.
Of the 10 retail corridors that C&W tracks in Manhattan (Fifth Avenue between 49th and 60th Streets, Fifth Avenue between 42nd and 49th Streets, Madison Avenue, Upper West Side, Third Avenue, Times Square, Flatiron, Meatpacking District, SoHo, Lower Manhattan) eight saw double digit percentage growth in ground floor average asking rents from last quarter. Lower Manhattan, which includes Broadway, Wall Street and Fulton Street, was one of those corridors, with an increase of nearly 30 percent.
“The future of Lower Manhattan is bright,” Schmerzler said.
The submarket will have two state-of-the-art transportation hubs, which will serve between 300,000 and 500,000 commuters, residents and tourists daily. The area currently hosts more than 11 million tourists annually, and is expected to exceed 15 million within the next three years. Additionally, the submarket has more than 30,000 residential housing units and 62,000 residents, a five-fold increase from 2003.
Steve Kohn, President, Equity, Debt & Structured Finance, discussed Manhattan sales volume and cited that the market this year has been led by large transactions that exceed $100 million.
“Despite rising interest rates, the strength of the NY market continues to drive the upward trajectory of sales volume and values,” said Kohn.
A total of 159 transactions have been completed thus far this year, with an average deal size of $165 million. That compares to 309 transactions completed all of 2012, with an average deal size of $86 million.
Including deals under contract, third quarter volume is up 39 percent year-over-year. Corporations and owner-occupiers have been active sellers in 2013.