NEW YORK – October 7, 2015 – The overall Manhattan office market continued its streak of solid quarters, with increasing asking rents, a decline in availability, and more 100,000-sf leases recorded Downtown than in the previous two quarters combined, according to new research from Colliers International. There was an expected post-summer drop-off in overall Manhattan leasing velocity, with the third quarter not quite reaching the high notes of last year, although the market is likely poised for a more robust fourth quarter as pending leases and investments sales get closer to being finalized in advance of the year’s end.

Overall Manhattan leasing activity for the third quarter of 2015 was 7.1 million sf — down 12.8 percent from approximately 8.1 million sf in the second quarter — and 14.1 percent below the 8.2 million sf a year ago. Activity was 2.4 percent below the ten-year rolling average (7.2 million sf), the first time of below-average leasing activity since 2013, although Manhattan’s overall quarterly leasing has been above the ten-year rolling average for eight of the 10 last quarters.

But the market continued to tighten. At 9.7 percent — the lowest the overall Manhattan availability rate has been since the third quarter of 2008 — the rate was down 40 basis points (bps) from 10.1 percent last quarter and down 50 bps from 10.2 percent a year ago. Meanwhile, overall Manhattan absorption was positive 2.3 million sf in the third quarter, increasing year-to-date absorption from positive 1.5 million square feet at the end of the second quarter to positive 3.7 million square feet at the end of the third quarter. Although down from 7.3 million sf of positive overall Manhattan absorption through the first three quarters of 2014, the current level reflects a continued demand for space, with TAMI firms accounting for 34 percent of all third quarter leasing. 

As an additional sign of market tightening, at $70.25/sf the overall Manhattan asking rent surpassed $70/sf for the first time since 2008 and represented the tenth consecutive quarter of rising rents. The current rate is also 2.6 percent higher than the $68.47/sf last quarter and 6.5 percent above the $65.97/sf achieved a year ago.

“The Manhattan office market continues to perform well, backed by a strong local economy, a desire for talented employees to live, work, and play here, and international investors who still see New York as a safe haven and a relative bargain on a global scale,” said Joseph Harbert, Eastern Region President for Colliers International. “Asking rents have set records yet again, putting pressure on tenants, and availability rates continue to fall, with several significant transactions in the pipeline we anticipate will close by end of the year. We have every reason to believe that New York will continue this solid pace through the end of the year and into 2016.”

MIDTOWN

Midtown registered 3.32 million sf of leasing in the third quarter, down 22.9 percent from the 4.31 million sf last quarter, but still up slightly from the 3.30 million sf a year ago. And while Midtown quarterly leasing has been above the ten-year rolling average of 3.71 million sf for seven of the 10 last quarters, leasing activity in the third quarter of 2015 was 10.4 percent below average, the first time of below-average leasing activity since the third quarter of 2014.

At 9.6 percent, the availability rate was 50 bps below the 10.1 percent last quarter and 100 bps below the 10.6 percent a year ago, while also achieving its lowest level since the third quarter of 2008. Although several large blocks of new space listed during the quarter, absorption was still positive at 1.1 million sf, although it was down considerably from the positive 2.2 million sf the previous quarter and positive 1.9 million sf a year ago. 

Midtown also saw average asking rents rise to $79.57/sf, up 2.1 percent from $77.93/sf in the second quarter and up 5.1 percent from $75.74 sf a year ago. At $82.24/sf, the Class A average rose 2.5 percent, up from $80.23/sf the previous quarter, while for the second consecutive quarter remaining above $80.00/sf, a level that had not been reached since 2008. 

MIDTOWN SOUTH

Midtown South continued its run as one of the country’s tightest markets. While leasing activity was 2.3 million sf, down 22.0 percent from 3.0 million sf the previous quarter, and 19.7 percent from 2.9 million sf a year ago, leasing was 14.1 percent above the rolling ten-year average of 2.0 million sf, the eighth consecutive above-average quarter, and the ninth time in the last 10 last quarters.

In addition, the overall asking rent hit another all-time high — $65.32/sf — breaking the record set last quarter and marking the 19th consecutive quarterly increase. Repricing of existing blocks of space and newly listed large blocks with above-average asking rents contributed to the record-breaking level, which was up 12.3 percent from $58.19/sf a year ago. 

And though down 59.5 percent from the 0.77 million sf of positive absorption year-over-year, the third quarter tally of 0.3 million sf marked Midtown South’s fifth consecutive quarter of positive absorption, extending its longest continued period of positive absorption since 2010-2011. As a consequence, the Midtown South availability rate was 7.4 percent, down 20 bps from 7.6 percent the previous quarter and down 110 bps from 8.5 percent a year ago, lower than at any point since 2008.

DOWNTOWN

Downtown recorded the strongest quarterly improvements among the major submarkets, with three separate leases exceeding 100,000 sf: KCG Holdings, Inc. (169,000-sf at 300 Vesey Street); New York City Department of City Planning (115,000 sf at 120 Broadway) and; Ironshore Inc. (102,000 sf at 28 Liberty Street). 

These large leases helped propel overall activity to 1.4 million sf, up more than 75 percent from 0.8 million sf last quarter, reversing a two-quarter trend of leasing below 1 million sf. However, Downtown leasing was 5.1 percent below the rolling ten-year average of 1.5 million sf, the third consecutive quarter of below-average activity, and the fifth time over the last ten quarters.

Meanwhile, the average asking rent was $57.13/sf — another all-time high — up 3.7 percent from $55.07/sf the previous quarter, and up 10.5 percent from $51.70/sf a year ago.  

The Downtown availability rate decreased 80 bps to 13.3 percent, down from 14.1 percent from last quarter. Absorption was positive 0.87 million sf, nearly double the 0.48 million sf recorded the previous quarter, although year-to-date it is still negative at 0.50 million sf.   
 
CAPITAL MARKETS

Sales volume for the year is approaching record levels. Nearly $22 billion in property trades have closed year-to-date, with $8 billion under contract and another $7 billion being listed for sale. The prior peak occurred in 2007, which registered more than $30 billion in office trades.

In addition to Blackstone acquiring the $3.9 billion, five-building RXR portfolio, the largest single-property trades included: 11 Madison Avenue ($2.58 billion; $1,100/sf); office condo at 229 West 43rd Street ($516 million; $1,073/sf) and; 575 Lexington Avenue ($510 million: $685/sf).

Pricing for Manhattan office building sales reached $937/sf, another record level.

Additional highlights from Colliers International’s 2015 third quarter Manhattan analysis: 

  • FIRE sector tenants dominated both Midtown and Downtown, accounting for 46 percent and 43 percent, respectively, of all leased space. 
  • All three building classes in Midtown posted increases to their average asking rents.
  • At $77.52/sf — up $9.01/sf from $68.51/sf the previous quarter — Soho posted the largest quarterly gain in average asking rent of any Manhattan submarket. 
  • FiDi led Downtown — for the fourth consecutive quarter — with 0.71 million sf leased.
  • Foreign investors have accounted for $5 billion of direct Manhattan property acquisitions year-to-date, and nearly 25 percent of all purchases.