Manhattan Office Vacancy Declines, Leasing Rises in April
11 May, 2010, New York
Cushman & Wakefield today released April statistics for the Manhattan commercial real estate market that show the vacancy rate declined in April to 11.5 percent from 11.6 percent at the end of the first quarter. The decline in vacancy marked the fourth time in six months that the Manhattan office vacancy rate experienced a monthly decline.
And for the second consecutive month, new leasing activity in April totaled 2.2 million square feet. That makes March and April of 2010 the two strongest consecutive months for new leasing activity since June and July of 2007.
All three Manhattan submarkets, Midtown, Downtown and Midtown South - the first, fourth and fifth largest office markets in the United States - experienced decreases in vacancy in the month of April. Cushman & Wakefield's Research Group tracks vacancy (which the company defines as space available within six months), and also availability (which it defines as space available within 12 months).
The vacancy rate in Midtown South declined to 9.8 percent, the lowest in the nation, from 9.9 percent at the end of March. For the same time period, the Downtown vacancy rate declined to 9.9 percent from 10.0 percent, and the Midtown vacancy rate declined to 12.5 percent from 12.6 percent.
At the end of April, the availability rate in Manhattan totaled 12.3 percent, with the outlook most stable in Midtown. The Midtown availability rate totaled 12.7 percent at the end of April, only slightly higher than the current vacancy rate. The Midtown South availability rate reached 10.5 percent in April, 0.7 percentage points above the current vacancy, while the Downtown availability rate hit 12.7 percent, a full 2.8 percentage points above the current vacancy.
"We're seeing two key factors at work in the market today," said Joseph R. Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region. "One is a continuing trend on behalf of office tenants to lock-in value at today's market rental rates, and the other is that we appear to be in the very early stages of an economic recovery that is restoring business confidence and paving the way for long-term leasing decisions."
Prior to the vacancy rate decline in April, Manhattan experienced vacancy rate declines in February 2010, as well as December and November 2009. Despite the recent decreases, the Manhattan office vacancy rate is up 1.2 percent from this time last year.
Mr. Harbert cautioned that despite the stronger leasing environment in recent months, "several substantial blocks of space have been added to the market" that are expected to be available within 12 months time, particularly Downtown. He said this is expected to increase the overall vacancy prior to year end, although the healthier demand for space should help keep rents from declining much further.
"Despite the state of the broader economy, the Manhattan commercial real estate market has been relatively resilient over the past year," said Ken McCarthy, Cushman & Wakefield's Managing Director of Research for the New York Metro Region.
According to Mr. McCarthy, for the 12 months ended April 2010, more than 5.9 million square feet of direct space - or space available directly from landlords - has been added to the market as available inventory. During the same time period, Mr. McCarthy said, sublease space - space available from tenants with existing leases - has decreased by 1.1 million square feet. Sublease space now accounts for 22.7 percent of all available space, down substantially from a peak of 28.2 percent in April 2009. At the end of April 2010, overall average asking rents in Manhattan registered $54.98, a decline of approximately 25 percent from their peak of $72.97 in the third quarter of 2008.
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