NEW YORK – APRIL 7, 2015 – The Manhattan office market showcased a first quarter resurgence in the FIRE sector, a Midtown rebound, record-breaking asking rents, and minimal re-pricing despite large blocks of space somewhat counteracting this activity, according to new research from Colliers International. Notwithstanding soft pockets throughout the city, the Manhattan office market is poised for another strong year in 2015, driven by an improving, diversified economy, continued demand for space, and escalating asking rents.
Manhattan fundamentals revealed layers within the office market. Overall first quarter leasing was 8.3 million sf — down 1.8 percent from approximately 8.5 million sf in fourth quarter of 2014 — and 30.1 percent below the 11.9 million sf a year ago. Yet it was the sixth consecutive quarter of surpassing the five-year average leasing velocity.
The overall Manhattan availability rate in the first quarter was 10.7 percent, up from 10.0 percent in the fourth quarter of 2015, but lower than the 11.4 percent a year ago. Absorption took a big hit this quarter, due primarily to large blocks of space coming onto the market. At negative 1.4 million sf it was down dramatically compared with the positive 1.1 million sf registered in the previous quarter as well as the positive 1.4 million sf a year ago.
Meanwhile, the overall Manhattan asking rent rose for the eighth consecutive quarter. At $67.62/sf it was 1.7 percent higher than the $66.52/sf the previous quarter and 6.3 percent higher than the $63.59/sf achieved a year ago.
“The Manhattan office market experienced a steady first quarter of 2015, with the dual impact of new and renovated space being released into the market simultaneous to recording-breaking asking rents somewhat tempering activity,” said Joseph Harbert, Eastern Region President for Colliers International. “But demand for space is healthy across the city. It is possible that we are experiencing a flywheel effect from a robust fourth quarter of 2014, but there is potential for a strong year ahead.”
Midtown experienced its strongest quarter in more than a year, with the FIRE (financial services, insurance, and real estate) sector accounting for 40 percent of leasing activity. In total Midtown registered 4.9 million sf of first quarter leasing, up 22.4 percent from 4.0 million sf last quarter and up 7.8 percent from 4.6 million sf a year ago. 
Absorption was negative 425,710 sf, an increase from negative 312,293 sf last quarter, but an improvement from the negative 1,270,068 sf a year ago. Midtown also saw average asking rents rise to $76.15/sf, up 1.8 percent from the previous quarter and up 3.6 percent from $73.49 a year ago, and 30.4 percent above its $58.38/sf low-point during the second quarter of 2010, the bottom of the recession.
However, while the asking rent increase was caused by high-priced availabilities during the first quarter, this new inventory also led to negative absorption and a slight increase in the availability rate, which rose to 11.1 percent, up from 10.7 percent in the fourth quarter, yet still lower than the 11.8 percent in Midtown a year ago.
Midtown South continues to be one of the tightest markets in the country. In the first quarter Midtown South set its all-time high-water mark for average asking-rent, at $62.02/sf, up 0.8 percent from $61.50/sf the previous quarter and up 11.7 percent from $55.53/sf a year ago. Unlike Midtown, the Midtown South average asking rent increased due to a mix of new and planned construction along the Far West Side and Chelsea and the re-pricing of space currently on the market.
Despite the asking rent increases Midtown South experienced a slight drop in leasing activity in the first quarter, registering 2.6 million sf, an 11.5 percent drop from the 2.9 million sf leased in the previous quarter and 47.7 percent lower than the nearly 5.0 million sf leased a year ago.
Midtown South showed further resiliency with 855,444 sf of positive absorption despite increased inventory, although it was down 8.0 percent from 929,487 sf in the fourth quarter of 2014 and down 41.8 percent from the nearly 1.5 million sf of positive absorption a year ago. Meanwhile, the Midtown South availability rate decreased for the third consecutive quarter, to 7.7 percent, down from 7.9 percent in the fourth quarter of 2014 and from 8.8 percent a year ago.
The Downtown market ended the first quarter of 2015 with mixed results. Once again, Downtown broke its own previous all-time high average asking rent, ending at $55.00/sf, although this was the result of substantial sized blocks of space added to the market at substantial asking rents, driving up the average.
Meanwhile, Downtown’s 806,668 sf of leasing was 47.1 percent below the previous quarter’s 1.5 million sf, and 65.9 percent less than the 2.4 million sf a year ago.
Downtown also registered its first quarter of negative absorption since the second quarter of 2013. Its negative 1,851,067 sf was a 460 percent decline from the positive 514,032 of positive absorption in the previous quarter and a 249 percent decline from the 1,246,463 sf a year ago. Further, Downtown registered its largest single quarter increase in availability rate in four years. At 14.6 percent, it was significantly higher than last quarter’s 11.7 percent, but in line with the 14.4 percent a year ago.
Although this sudden rise in availability rate could dampen the Downton market, Lower Manhattan is in a stronger position than it was in 2011. Condé Nast’s commitment to relocate Downtown set the stage for other significant relocations and expansions, the Fulton Center is open, Brookfield Place’s retail renovation project is now complete, all but one of the World Trade Center buildings are open or under construction and the World Trade Center Transportation Hub will open later this year.
The appetite for Manhattan office properties has continued unabated. The first quarter of 2015 registered 15 ten office transactions totaling $5.2 billion, on pace to match or even exceed the post-recession high in 2013. The first quarter also set all-time record high marks for average price per square foot, including $1,280/sf in Midtown, $1,077/sf in Midtown South, and $970/sf in Manhattan overall, with cap rates approaching record levels throughout Manhattan.
Additional highlights from Colliers International’s 2015 first quarter Manhattan analysis: 

  • 63 percent of total lease transactions were less than 15,000 sf
  • At 40 percent the FIRE sector was responsible for the largest single share of all Manhattan leasing activity
  • The Plaza District retained the highest average asking rent at $92.57/sf
  • Gramercy Park had the largest quarterly price increase among all submarkets, reaching $73.83/sf, up from $68.43/sf in the fourth quarter of 2014
  • World Trade Center had the highest submarket availability rate, at 19.1 percent