New York Commercial Real Estate Recovery Continues
5 Oct, 2010, New York
Cushman & Wakefield today released third quarter statistics for the Manhattan commercial real estate market that show leasing and investment activity up strongly year over year.
Through the first nine months of 2010, the value of commercial property investments closed and under contract in Manhattan totaled $9.4 billion, up 168 percent from the $3.5 billion of investment transactions completed in all of 2009. In Midtown, closed property sales (excluding properties in contract) totaled $6.3 billion, up 103.5 percent from the $3.1 billion completed last year. In Midtown South, closed property sales totaled $1.1 billion, up 370.2 percent from the $235 million completed last year. And in Downtown, closed property sales totaled $611 million, up 213.3 percent from the $195 million completed last year.
"The increase in investment activity year to date is significant for the market overall, despite the fact that last year set an extremely low benchmark," said Joseph R. Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region. "What this level of activity suggests is that investors have taken note of improving market fundamentals and have identified Manhattan as a primary investment target."
New leasing activity, an indicator of market demand for available office space, rose 65.8 percent for the first nine months of 2010 as compared to the same period in 2009. Leasing activity overall measured 18.8 million square feet as of the end of September, compared with 12.6 million square feet through the first nine months of 2009 and 16.3 million square feet for all of 2009.
Despite the growth in leasing, the overall average vacancy rate was up slightly to 10.9 percent at the end of September from 10.8 percent at the end of June. The increase was due largely to the addition of more than 2 million square feet of available space in three Downtown Manhattan properties - approximately 1.5 million square feet of which was related to Goldman Sachs' relocation to its new headquarters. The Downtown vacancy rate rose to 12.1 percent at the end of September from 9.9 percent at the end of the second quarter.
In contrast, Midtown and Midtown South both experienced vacancy rate declines in the third quarter. Midtown's vacancy rate declined substantially to 11.0 percent at the end of September from 11.5 percent at the end of June. Midtown South's vacancy rate declined slightly to 9.2 percent from 9.3 percent in the same time period.
"We expected to see the increase in vacancy Downtown this quarter with the addition of space at 85 Broad Street, One New York Plaza and 70 Pine Street," said Ken McCarthy, Cushman & Wakefield's managing director for New York Metro Region Research. "However, this is all high quality, well located class-A space Downtown and we expect relatively strong demand for it."
The sublease vacancy rate - which represents space available directly from tenants with excess inventory - declined to 2.0 percent at the end of September from 2.4 percent at the end of the second quarter. Sublease space now accounts for only 18.1 percent of all available office space in Manhattan, down from a peak of 28.2 percent in April 2009.
At the end of September, overall average asking rents in Manhattan registered $53.80, down from $54.31 at the end of the second quarter. Average asking rents for class-A space declined to $60.69 from $61.33. In Midtown, both average asking rents and class-A average asking rents rose in the third quarter.
The top five leases of the quarter included a 287,000 square foot renewal for BBDO Worldwide at 1285 Avenue of the Americas, a 281,000 square foot renewal for CBS at 555 West 57th St., a 213,000 square foot new lease for Allianz Global Investors at 1633 Broadway, a 174,000 square foot new lease for the National Football League at 345 Park Ave., and a 173,000 square foot new lease for Healthfirst at 100 Church St.
By industry, financial services accounted for 25.5 percent of all leasing year to date, followed by legal services at 11.2 percent and government, education and social services at 9.7 percent. This compares to the full year 2009, when financial services accounted for 29.0 percent of leasing, followed by legal services at 15.5 percent, and government, education and social services at 11.9 percent.
Third quarter statistics showed that the Manhattan retail market continued to strengthen along the city's prime retail shopping streets.
In Soho, availability decreased to 9.0 percent, down from 9.9 percent at midyear 2010. Despite declining availabilities, average asking rents for ground floor space fell slightly to $254 per square foot, down $14.00 - or 5 percent - from the previous quarter. Several retailers committed to Soho during the third quarter, including Converse, which will open its first Manhattan store at 560 Broadway.
The Upper West Side retail market saw a large quarterly dip in availability, which fell from 8.4 percent at midyear to 5.7 percent. The Upper West Side was home to a major retail deal this past quarter, as Century 21 leased 61,000 square feet at 1972 Broadway, presently Barnes & Noble. Average asking rents remained stable, ending the quarter at $285 per square foot, on par with $286 per square foot during the previous quarter.
On the lower portion of Fifth Avenue, increased leasing activity caused availability to fall from 6.2 percent at midyear, ending the third quarter at 6.0 percent. Guess (575 Fifth Ave.), Urban Outfitters (521 Fifth Ave.) and Syms (530 Fifth Ave.) all signed leases there during the third quarter of 2010. Average asking rents increased $87, or 21 percent, to $501 per square foot.
Fifth Avenue's upper stretch saw increases in both availability and asking rents. Availability increased from 6.6 percent to 8.1 percent, while average ground floor asking rents increased $217 or 10 percent - to $2,317 per square foot.
After reaching a nearly three-year low last quarter, availability on Madison Avenue increased slightly to 11.1 percent at the end of the third quarter. Despite the increase, the submarket remained on the road to recovery, evidenced by continued increases in average asking rents, up $10 quarter-over-quarter, ending the third quarter at $841 per square foot.
In Times Square, availability increased from 8.7 percent at midyear, ending the third quarter at 9.3 percent. Average asking rents for ground floor space decreased $40.00, or 6 percent, from the previous quarter - declining to $651 per square foot at the end of October. Though average rents for the Times Square market as a whole decreased, asking rents in its "Bowtie" - spanning 42nd to 47th Streets on Broadway - exceeded $1,000 per square foot, making it the second-most expensive market in Manhattan.
# # #