Manhattan Office Leasing Activity Surges to Pre-Recession Levels
3 Jun, 2010, New York
Cushman & Wakefield today released statistics for the Manhattan commercial real estate market that show the vacancy rate declined to 11.3 percent in May from 11.5 percent at the end of April. The decline in vacancy coincided with the strongest month for new leasing activity in Manhattan since September 2006, as more companies have sought opportunities to relocate while rents are favorable. For the month of May, 2.6 million square feet of new office leases were signed, a 221 percent increase compared to May 2009.
The Manhattan Class-A vacancy rate declined to 12.0 percent in May from 12.5 percent in April, the largest one month percentage point decline since January 2007. For the same time period, the overall Midtown Manhattan vacancy rate (including all property classes) declined to 12.1 percent from 12.5 percent, and the Midtown South vacancy rate declined to 9.6 percent from 9.8 percent. Downtown, the vacancy rate increased slightly to 10.0 percent from 9.9 percent.
At the end of May, the availability rate - which includes space available within 12 months (the vacancy rate includes space available within six months) - totaled 12.0 percent in Manhattan, down from 12.3 percent at the end of April. The Midtown and Downtown availability rates remained unchanged from the prior month, each ending May at 12.7 percent. The Midtown South availability rate declined to 10.2 percent from 10.5 percent.
"The momentum in the market is continuing to build," said Joseph R. Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region. "The highest quality space is attracting tenants at a rapid pace, which is a clear reversal from the trends evident during the recession."
Midtown, which has approximately 75 percent of Manhattan's Class-A inventory, experienced the steepest increase in vacancy among the three markets since the beginning of 2007. After reaching a low of 5.0 percent in January 2007, the Midtown Class-A vacancy rose to 13.9 percent at the end of March 2010. Since then, the Midtown Class-A vacancy rate has declined 0.7 percentage points, bringing the year over year vacancy rate increase for the highest quality space in the city to just 0.3 percentage points.
"Without question, the Midtown Manhattan office market has stabilized," said Ken McCarthy, Cushman & Wakefield's Managing Director of Research for the New York Metro Region. "Considering the strength of recent leasing activity and positive developments in the New York and national economy, we feel it's safe to say that the New York office market is in the early stages of a recovery."
Mr. McCarthy cautioned, however, that there are still "some concerns about economic recovery given the situation in Europe and pending financial reforms."
In addition to the overall vacancy rate decline in May, Mr. McCarthy pointed out that the sublease vacancy rate - space available directly from tenants with excess space - declined to 2.5 percent from 2.6 percent in April. Sublease space now accounts for 22.6 percent of all available space in Manhattan, down from a peak of 28.2 percent in April 2009.
At the end of May 2010, overall average asking rents in Manhattan registered $54.35, down slightly from $54.98 at the end of April. While average asking rents have declined approximately 25 percent from their peak of $72.97 in the third quarter of 2008, they have fallen less than $4.00 per square foot over the past 10 months, while in the preceding 10 months they fell more than $14.00 per square foot.
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