Manhattan Office Market Registers Strongest Quarter for Leasing Since 2006
11 Jan, 2011, New York
Cushman & Wakefield today released year-end statistics for the Manhattan commercial real estate market that show office leasing and investment activity have rebounded sharply year-over-year following the strongest fourth quarter for leasing activity in more than four years.
New leasing activity, an indicator of market demand for available office space, rose 61.4 percent for the 12 month period ending Dec. 31, 2010, compared to the prior year. Leasing activity measured 26.3 million square feet for 2010 as a whole, compared to 16.3 million square feet for 2009. In the fourth quarter, new leasing activity totaled 7.5 million square feet, the second highest quarterly total in five years and the highest since the third quarter of 2006, when it registered 8.1 million square feet.
"This is an incredible and heartening uptick in activity coming from the depths that the market touched 18-to-24 months ago," said Joseph R. Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region. "With limited new construction and modest improvements in employment in New York City, this leasing activity has produced the first clear signs that fundamentals are now on the mend."
At the end of December, the average Manhattan office vacancy rate declined to 10.5 percent from 10.9 percent at the end of the third quarter - the largest quarterly decline since the second quarter of 2007. The market also experienced the first year-over-year office vacancy rate decline since the fourth quarter of 2007, and the first year of positive space absorption since 2007. At the end of March 2010, the Manhattan vacancy rate hit a five-year peak of 11.6 percent.
In the fourth quarter, all three submarkets of Manhattan - Midtown, Midtown South and Downtown - experienced significant declines in vacancy, with the largest on a percentage basis in Midtown South and Downtown. Midtown's vacancy rate declined to 10.6 percent at the end of December from 11.0 percent at the end of September. Midtown South's vacancy rate declined to 8.6 percent from 9.2 percent in the same time period, which Mr. Harbert explained positions it as a market in equilibrium, which the company classifies as a vacancy rate between 7-to-9 percent in Manhattan. In addition, Downtown's vacancy rate declined to 11.5 percent from 12.1 percent.
The sublease vacancy rate - which represents space available directly from tenants with excess inventory - declined to 1.9 percent from 2.0 percent at the end of September and 2.7 percent one year ago. Sublease space now accounts for only 17.9 percent of all available office space in Manhattan, down from a peak of 28.2 percent in April 2009.
At the end of December, overall average asking rents in Manhattan registered $54.34, up from $53.80 at the end of the third quarter in their first quarterly rise since the third quarter of 2008. Average asking rents for class-A space rose to $61.96 from $60.69 at the end of the third quarter.
The top five leases of the fourth quarter included a 408,000-square-foot lease for Societe Generale at 245 Park Avenue, a 277,000-square-foot renewal and expansion for Winston & Strawn at 200 Park Ave., a 213,500-square-foot lease for Meredith Corporation at 805 Third Avenue and a 184,764-square-foot lease for Natixis at 1251 Avenue of the Americas.
By industry, financial services accounted for 29.5 percent of all new leasing in 2010, followed by legal services at 10.9 percent and government, education and social services at 9.8 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.
For the 12-months ended Dec. 31, 2010, the value of commercial property investments closed in Manhattan totaled $13.6 billion, up nearly 290 percent from the $3.5 billion of investment transactions completed in 2009. In Midtown, closed property sales (excluding properties in contract) totaled $9.5 billion, up 208 percent from the $3.1 billion completed last year. In Midtown South, closed property sales totaled $3.3 billion, up 1,311 percent from the $235 million completed last year. And in Downtown, closed property sales totaled $808 million, up 314 percent from the $195 million completed last year.
"The volume of investment in Manhattan and New York City overall is indicative of the availability of equity and debt capital in the market today, the demand among domestic and foreign investors for quality assets in prime locations and the more positive economic outlook for New York City in general," said Mr. Harbert.
The sale of 111 Eighth Ave. to Google for approximately $1.8 billion was the largest in the United States in 2010. Other notable sales included the $576 million partial interest sale of 1221 Avenue of the Americas to the Canadian Pension Plan Investment Board, and the $140 million sale of 417 Fifth Ave. to a foreign investor.
Fourth quarter statistics showed that the Manhattan retail market continued to gain strength along the city's prime retail shopping corridors. Almost across the board average asking rents rose as availability decreased, with few exceptions.
In Soho, availability dropped to 8.4 percent from 12.6 percent at the end of 2009. Average asking rents for ground floor space rose to $277 per square foot from $258 a year ago.
The Upper West Side retail market saw a large year-over-year drop in availability, which fell from 9.2 percent at the end of 2009 to 5.7 percent. Average asking rents remained stable, ending the year at $290 per square foot, up from the prior quarter but down from $298 per square foot at the end of 2009.
Fifth Avenue remained strong, despite new availabilities. Between 49th and 60th Streets, average asking rents rose to $2,254 per square foot from $2,000 one year ago, as availability rose to 11.3 percent from 3.3 percent at the end of 2009. On the lower portion of Fifth Ave., between 42nd and 49th Streets, average asking rents reached $538 per square foot from $536 per square foot at the end of 2009. There, availability declined year over year to approximately 9.0 percent from 12.3 percent last year. Cushman & Wakefield brokers attributed the rise in availability and rent on the upper portion of Fifth Avenue to continued strong demand, citing the fact that active discussions are underway for nearly every space on the market.
Availability on Madison Avenue remained steady at 12.8 percent year over year. Average asking rents rose to $847 from $834 per square foot. In Times Square, availability remained unchanged year-over-year, at 9.3 percent. Average asking rents for ground floor space rose to $747 per square foot from $610 one year ago. However, average asking rents in the "Bowtie" section of Times Square - spanning 42nd to 47th Streets on Broadway - remain well above $1,000 per square foot, making it the second-most expensive retail location in Manhattan.
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