Cushman & Wakefield today released mid-year statistics for the Manhattan commercial real estate market that shows healthy new leasing activity through the first half of the year. Total new leasing reached 15.3 million square feet (msf), with a vacancy rate of 8.8 percent, which marks the first time the vacancy rate has dropped below 9.0 percent since January 2009.
“We’re on track for a very healthy leasing year backed by exceptionally strong new leasing activity in Midtown,” said Ron Lo Russo, President, New York Tri-State Region. “Of the 20 submarkets we track in Manhattan, 18 of them saw rent increases compared to a year ago, which is indicative of the depth and breadth of the strength of the market.”
The overall asking rent in Manhattan increased 8.8 percent year-over-year to $70.52 per square foot (psf), which marks the first time since November 2008 that the overall asking rent has surpassed $70 psf. The Manhattan class-A average asking rent totaled $75.83 psf, an increase of 7.2 percent year-over-year.
While each of Manhattan’s three major markets saw nearly double digit percentage increases in average asking rents psf year-over-year, the Midtown South and Downtown markets reached all-time highs, at $66.86 psf and $58.25 psf, respectively. The Downtown vacancy rate through the first half of the year closed at 10.3 percent, while Midtown South continues to be the tightest Central Business District (CBD) in the nation, with a vacancy rate of 6.2 percent.
“In the last four years, we’ve had two of the most extraordinary leasing years on record,” said Ken McCarthy, Senior Managing Director, Tri-State Research, referring to 2014, which had 32.8 msf of new leasing, and 2011, which had a total of 30.1 msf. “The TAMI sector has been the main reason for the growth we’ve seen following the recession, but over the past two years financial services has become an important factor in the New York City economy.”
From December 2009 to January 2013, the TAMI (technology, advertising, media & information) sector was responsible for 42.3 percent growth in office using employment in New York City, while financial services contributed 10.6 percent. In the last two years, from January 2013 to May 2015, however, the TAMI sector contributed 32.7 percent growth, while financial services contributed 24.0 percent.
New York City has been the focal point of job growth in the metro area for the past decade, with 663,400 jobs added in the City and 86,300 jobs in the suburbs. This urbanization is tied to the growing millennial population. This generation, which is now the largest component of the labor force, seeks live, work, play environments.
While the main growth driver since the recession in the Manhattan market has come from the TAMI sector, the story this year has been the resurgence of the financial services sector. This sector is leading new leasing activity in Manhattan this year and has led the Midtown market to one of the strongest first halves of a year on record.
“Boosted by activity in Hudson Yards, the Midtown office market realized a surprising 30 percent increase over the 10-year average in office leasing,” said Josh Kuriloff, a Cushman & Wakefield Executive Vice Chairman.
Overall in Manhattan through the first half of the year, financial services has accounted for 26.1 percent of overall leasing (for new leases and expansions of 10,000 sf or larger), while the TAMI sector accounted for 20.4 percent. That compares to 14.3 percent for the financial services sector last year at this time and 40.1 percent for the TAMI sector.
The Midtown market had a total of 10.5 msf of new leasing, which is up 12.5 percent year-over-year and the only market to see an increase from last year. The vacancy rate through the first half of the year closed at 8.9 percent, with average asking rents at $76.45 psf, up 7.9 percent.
The retail market in Manhattan continues to be as vibrant as ever. Of the top 10 most notable transactions this year, six were retail brands entering the Manhattan market for the first time.
“Manhattan is a vital center for retail activity where we continue to see dynamic growth year over year,” said Gene Spiegelman, Head of North America Retail Services. “Economic fundamentals are the drivers and play an integral role in shaping the urban environment.”
Those drivers include tourism, employment growth and per capita income.
Robert Knakal, Chairman, New York Investment Sales, discussed sales volume in New York City, noting that while the number of properties sold through the first half of the year is down 7.0 percent, sales volume is on pace to exceed $75 billion by year-end.
“The investment sales market continues to surge towards an all-time dollar volume record coupled with new value records in every neighborhood in the city,” Knakal said.