New York, October 4, 2016 – Manhattan asking rents are at record highs, according to Colliers International. At an average $73.85/ SF, asking rents are 0.7% above the $73.31/ SF peak from third quarter, 2008. The asking rent average was up 1.2%, quarter-over-quarter, and 5.1% year-over-year. Asking rents were higher in Class A and B buildings, in all three Manhattan markets and in 12 of the 17 submarkets.

Manhattan’s availability rate increased slightly – up 0.1pp (percentage points) – to 10.0%.1 Significant blocks of space were added in Midtown and Midtown South. As a result, absorption was flat at negative 0.31 MSF. Year-to-date absorption is negative at 2.02 MSF.

Yet, demand remains strong. At 8.24 MSF, leasing activity has increased by 0.7% since 2Q 2016 and is 16.7% higher, year-over-year. Quarterly leasing was also 13.8% above the ten-year historical average. Year-to-date leasing is 11.1% ahead of this point in 2015. Coach’s 694,000 SF sale-leaseback at 10 Hudson Yards was the third quarter’s largest transaction.

The FIRE (financial services, insurance and real estate) sector accounted for the largest share of Manhattan leasing during the quarter (at 26%) led by C.V. Starr’s 211,000 SF renewal and expansion at 399 Park Avenue and WeWork’s 159,000 SF lease at 12 East 49th Street.

Between August 2015 and August 2016, more than 89,000 new private sector jobs (a 2.4% increase) were added in New York City, higher than the 1.5% growth for New York State and the 1.9% gain nationally during the same period.2 At 5.7%, New York City unemployment (through August 2016) is 0.2pp under its pre-recession 5.9% from August 2008.3

The average price per square foot for Manhattan office investment sales dropped nearly 10.0% from $974/ SF in 2015 to $886/ SF year-to-date 2016. However, transaction volume remained strong with $18.3 billion closed year-to-date. Interest rates remained near historically low levels and investor demand remained robust, with foreign and institutional buyers accounting for three-fourths of the purchases in 2016.

MANHATTAN MARKET INDICATORS

 

3Q 2015

2Q2016

Current

Availability Rate

9.7%

9.9%

10.0%

Average Asking Rent ($/SF/YR)

$70.25

$72.94

$73.85

Leasing Activity

7,056,279

8,174,971

8,235,932

QTR Absorption

2,259,024

136,190

(306,190)

Joseph Harbert, President, Eastern Region for Colliers believes that “the markets remain healthy. There has been job growth and companies are making space decisions that impact their housing requirements, but also their branding and the ability to attract and retain talent. Those moving to Hudson Yards and Downtown are leaving behind space that creates opportunities for others.”

MIDTOWN

Despite the recovery in asking rents for Manhattan overall, Midtown’s quarterly asking rent average at $83.49/ SF is still 9.3% below its pre-Great Recession high of $92.04/ SF in 3Q 2008. Midtown asking rents are up 43.0% from the Great Recession low of $58.38/ SF in 2Q 2010. For the quarter, asking rents were 0.5% higher than 2Q 2016 and nearly 5.0% greater than 3Q 2015.

Leasing activity, at 4.20 MSF, was 10.2% below the previous quarter but 26.5% higher than this same point last year. FIRE tenants leased 35% of all space in Midtown during the third quarter, led by C.V. Starr’s deal at 399 Park Avenue.

Three separate blocks over 100,000 SF were added to Midtown’s available inventory during the quarter at 1155 Avenue of the Americas (501,000 SF), 777 Third Avenue (222,000 SF) and 399 Park Avenue (181,000 SF). Notwithstanding this new supply, the availability rate increased only slightly by 0.1pp to 10.6%, while quarterly absorption was flat at negative 0.32 MSF.

MIDTOWN MARKET INDICATORS

 

3Q 2015

2Q2016

Current

Availability Rate

9.6%

10.5%

10.6%

Average Asking Rent ($/SF/YR)

$79.57

$83.09

$83.49

Leasing Activity

3,323,309

4,683,522

4,204,565

QTR Absorption

1,073,908

90,655

(320,566)

MIDTOWN SOUTH

Asking rents in Midtown South increased by 1.3% to a new record high at $67.54/ SF. Asking rents were higher in Class A and B buildings as well as in five of Midtown South’s seven submarkets. Year-over-year, asking rents are up by 3.4%. The average asking rent for sublet space increased 4.3% to a new high of $59.28/ SF with sublet availability remaining below 2.0% for a record six years.

Demand was up by nearly 25.0% to 3.02 MSF, quarter-over quarter, and 30.2%, year-over-year. With Coach’s sale-leaseback at 10 Hudson Yards (694,000 SF) and Burlington Coat Factory’s renewal at 1400 Broadway (36,000 SF), the consumer goods/retail sector accounted for 36% of all Midtown South leases during the quarter.

With new large blocks at 5 Manhattan West (175,000 SF), 315 Park Avenue South (153,000 SF) and 11 West 19th Street (78,000 SF), Midtown South’s availability rate increased– by 0.4pp – to 7.9% and absorption was negative 0.56 MSF.

MIDTOWN SOUTH MARKET INDICATORS

 

3Q 2015

2Q2016

Current

Availability Rate

7.4%

7.5%

7.9%

Average Asking Rent ($/SF/YR)

$65.32

$66.65

$67.54

Leasing Activity

2,320,428

2,431,614

3,021,427

QTR Absorption

312,255

36,029

(560,570)

DOWNTOWN

Quarterly Downtown leasing activity decreased by 4.7% to 1.01 MSF for a 28.5% year-over-year drop off. But, year-to-date leasing is still 39.7% ahead of 2015. Despite the decline in demand, Downtown’s asking rent average increased for the ninth consecutive quarter to a new all-time high of $58.83/ SF. This nine-quarter run up in rents ties the record from 3Q 2005 - 3Q 2007. Year-over-year, the average is up 3.0%.

Public sector leasing was 50% of all Downtown leasing activity during the quarter with the City of New York’s lease at 375 Pearl Street (183,000 SF), Weil Cornell Medical College’s expansion at 156 William Street (54,000 SF) and the Guggenheim Foundation’s lease at 1 Liberty Plaza (46,000 SF).

With no new blocks of space over 100,000 SF, the quarterly availability rate declined by 0.5pp to 11.7%. This is Downtown’s tightest market in nearly two years. Absorption for the quarter was positive 0.57 MSF.

DOWNTOWN MARKET INDICATORS

 

3Q 2015

2Q2016

Current

Availability Rate

13.3%

12.2%

11.7%

Average Asking Rent ($/SF/YR)

$57.13

$58.24

$58.83

Leasing Activity

1,412,642

1,059,835

1,009,940

QTR Absorption

872,861

9,506

574,946

CAPITAL MARKETS

Total transactional volume for the first three quarters of 2016 reached $18.3 billion. The majority of sales transactions occurred in Midtown South. Institutional and foreign buyers have become more comfortable deploying capital in this tech tenant dense market.

The average Manhattan sale price dropped despite asking rental rates reaching peak levels in the third quarter of 2016. While the appetite for Manhattan office buildings remains strong there is 31.83 MSF of office construction/renovation projects in the pipeline. Some large Midtown tenants relocated or committed to leases in modern office buildings in Hudson Yards/Manhattan West and the World Trade Center complex. Underwriting has become more conservative as investors and lenders anticipate a flattening in rental rates.

MANHATTAN INVESTMENT SALES

(Office sales over $15 million)

 

YTD 2016

2015

2015

2013

2012

Total sales

$18.3 bil

$28.7 bil

$16.8 bil

$19.7 bil

$9.1 bil

Average sale price

$339 mil

$327 mil

$218 mil

$303 mil

$147 mil

Average price/SF

$886

$974

$715

$769

$509

Additional highlights from Colliers International’s 3Q 2016 Manhattan analysis:

  • The five largest third quarter leases were Coach’s 694,000 SF sale-leaseback at 10 Hudson Yards, Penguin Random House’s 604,000 SF renewal at 1745 Broadway, Visiting Nurse Service of New York’s 308,000 SF lease at 220 East 42nd Street, Milbank Tweed Hadley & McCloy’s 258,000 SF lease at 55 Hudson Yards and C.V. Starr & Co.’s 211,000 SF renewal/expansion at 399 Park Avenue.
  • Penn Plaza/Garment District topped Manhattan’s 17 other submarkets in quarterly leasing activity by wide margins at 1.80 MSF with two leases over 250,000 SF both in Hudson Yards/Manhattan West.
  • Manhattan sublet availability has remained below 2.0% for nearly four years, a record period. Sublet availability increased by only 0.1pp to 1.6% last quarter. The average asking rent for sublet space was up 3.0% to $59.59/ SF, quarter-to-quarter.
  • Midtown South Class A asking rents increased 89.8% since their post-recession low compared to Downtown Class A (59.1%), Midtown Class A (43.9%) and Manhattan Class A (50.4%).
  • Manhattan’s 13 contiguous blocks of available space greater than 250,000 SF (part of availability rate) have an average asking rent of $89.78/ SF; a 21.6% premium over the Manhattan average.

______________________________________________
1 Note: The availability rate is based on actively marketed space scheduled by ownership for tenant build-out within 12 months.
2 Source: New York State Department of Labor.
3 Source: New York State Department of Labor. Unemployment data is non-seasonally adjusted.

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