Manhattan Office Leasing Totals 13.6M SF of New Leasing Activity Through First Six Months of 2016

Cushman & Wakefield today released second quarter statistics for the Manhattan commercial real estate market showing mid-year new leasing activity totaled 13.6 million square feet (msf). June represented the highest leasing month of the year with 2.9 msf leased. The TAMI sector (technology, advertising, media and information) accounted for 41% of new leases over 10,000 square feet.

Overall Manhattan average asking rents totaled $72.99 psf in June, exceeding the previous peak of $72.97 psf reached in September of 2008. Manhattan’s overall vacancy rate dropped to 8.8% in the second quarter, down from 9.0% in the first quarter. Year-to-date absorption totaled approximately 1.9 msf and was positive in Midtown and Midtown South. Midtown represented almost 90% of the city’s absorption due to healthy leasing activity and a minimal number of large blocks of space added to the market.

“While 2016 has not been as strong as the past two years, it is still well above historical averages as New York City's economy continues to be one of the nation’s leaders in employment growth,” said Ron Lo Russo, President, New York Tri-State Region. “At 13.6 msf of leasing activity through the first six months of the year, we’re ahead of the historical average.”

“Expect continued tenant demand and strong market fundamentals to push overall leasing activity to 2012 and 2013 levels, both strong years,” said Richard Persichetti, Research Director, Tri-State/Northeast Region.

Asking rents in the Midtown, Midtown South and Downtown submarkets continue to rise. Midtown South rose 2.6% from this time last year to $68.62 psf; Midtown asking rents gradually increased, rising 3.6% year-over-year to $79.18 psf and Downtown asking rents jumped 1.5% to $59.14 psf, up from $58.25 psf one year ago.

Vacancy rates fell across all three major markets. At 9.8%, Downtown vacancy fell to single digits for the first time in four months. Midtown vacancy rates dropped to 9.2% while Midtown South remained stable at 6.3%, which continues to be one of the tightest Central Business Districts in the U.S.

“It is hard to predict demand and relatively easy to predict supply,” said Mark Weiss, Executive Vice Chairman. “But because the two elements are inextricably linked, drawing thoughtful inferences is as much art as it is science.”

Mr. Weiss, who presented on the Midtown market at Cushman & Wakefield’s Commercial Real Estate Overview & Outlook press conference, emphasized that the new supply of office product in New York City, which will total 31.2 msf by 2020, is larger than Denver’s entire office market of 27.7 msf.

The Brooklyn office market is also witnessing a period of growth, with an influx of new construction and redevelopment.

“Brooklyn is no longer a back-office market,” said Joseph Cirone, Senior Director. “Tenants seeking office space in the borough will have a number of options to choose from.”

Mr. Cirone, who presented on the Brooklyn market, highlighted the borough’s millennial residents, its proximity to Manhattan and the bourgeoning residential and retail markets as some of the key differentiators that give Brooklyn a competitive edge when it comes to attracting office users.

Cushman & Wakefield recently named Sunset Park, Brooklyn as the number one “cool street” in its inaugural Cool Streets of North America report, which listed the top 100 up and coming hottest retail enclaves.

Gene Spiegelman, Vice Chairman and Head of North America Retail Services, highlighted that despite retail supply outpacing demand, consumers are craving experiential retail experiences.

“Leasing velocity in key submarkets remains consistent in 2016, however the supply is outpacing demand. New York City continues to lead the charge in experiential retail and remains a trend-setting marketplace for stores.”

Robert Knakal, Chairman, New York Investment Sales, presented an overview of New York City’s investment sales market. Through the first half of the year a total of 2,257 properties were sold, accounting for $31.5 billion in sales – the figures are on pace to reach 4,514 properties sold and $63.1 billion in sales by year-end.

“At the midpoint of 2016, the New York City investment sales market is no clearer than at the beginning of the year,” said Mr. Knakal. Many signs point toward a coming correction as sales volumes fall, price appreciation slows and specific product sectors, which normally drop first, are dropping. However, the pace of change is very slow as externalities are exerting downward pressure on interest rates and capital keeps flowing into the market, notwithstanding with a more cautious eye.”