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Colliers Q3 2017 New York Office Market Report

Colliers Q3 2017 New York Office Market Report

— Continued Capital Appreciation for Office Assets Despite Slowdown in Activity —


New York, October 3, 2017 – In Manhattan’s 9.48 MSF of leasing activity during 3Q 2017 was up 10.6%, quarter-over-quarter, according to Colliers International. Leasing volume increased by 15.1% compared to 3Q 2016. Year-to-date (YTD) leasing of 27.27 MSF is the second most active period from January to September in the last decade.

Job growth contributed to tenant demand. From August 2016 to August 2017, New York City added 89,000 new private sector jobs, a 2.4% yearly increase. New York City bettered the annual rate of employment growth nationally (1.7%) and for New York State (1.8%).1 At 5.1%, New York City’s unemployment rate (as of August 2017), is down 0.4pp (percentage points), year-over-year, but 1.2pp above the YTD low of 3.9% from April 2017.2

Deals by public sector, FIRE (financial services, insurance and real estate) and TAMI (technology, advertising, media and information services) nearly evenly split Manhattan leasing in 3Q 2017 with industry shares of 21%, 20% and 20%, respectively.

At an average of $72.87/ SF, asking rents were stable as against 2Q 2017 (down 0.3%) but lower since 3Q 2016 by 1.3%. Pricing was higher or unchanged in eight of Manhattan’s 18 submarkets, quarter over quarter.

Manhattan’s availability rate was tighter at 9.8%, down by 0.3pp since 2Q 2017 and by 0.2pp, year over year.3 Quarterly absorption was positive at 1.54 MSF for Manhattan’s strongest quarter of absorption in two years.

Some commentators have reported weakness in the market based on a perceived increase in the amount of available sublet space. Manhattan’s sublet availability rate was unchanged, quarter-over-quarter, at 1.8%. Sublet availability has been at or below 2.0% since 1Q 2011, a record period. Beginning in 4Q 2010 and the very earliest stages of the post-Great Recession recovery, subleases have represented less than one-fifth of Manhattan’s available inventory.

Since January, there have been 38 office sale transactions totaling $12 billion. Foreign capital continues to be an ever-increasing component of the market, responsible for $8.6 billion of activity or more than 72% of all office transactions. Foreign buyers accounted for four of the five largest office deals of the year with those four transactions alone worth $7.3 billion.

The average price of a Manhattan office building was up 5.5%, year-over-year, to $960.00/ SF. There was little movement in cap rates which remain in the 3.5% - 4.5% range. Assets with near-term upside or significantly below market rents sell at the lower end of the cap rate range. With just under $2 billion of deals under contract and set to close by year-end, 4Q 2017 is anticipated to be in-line with the rest of the year’s quarterly transaction volume.

Joseph Harbert, President, Eastern Region for Colliers believes that, “demand drives markets and New York City employment growth is strong. Active leasing by TAMI, FIRE and public sector tenants all contributed to tightening availability in Manhattan this past quarter and stable pricing. Small to mid-size companies that can leverage flexibility on location are well positioned to capitalize on the market’s best value opportunities.”


  3Q 2016  2Q 2017  3Q 2017 
Availability Rate 10.0% 10.1% 9.8%
Average Asking Rent ($/SF/YR) $73.85 $73.07 $72.87
Leasing Activity 8,235,932 8,571,383 9,483,528
Net Absorption (306,190) 617,580 1,544,636



At 4.22 MSF, quarterly Midtown leasing was up nearly 20.0% and was comparable to the same point last year. In the last decade, Midtown’s 2017 YTD total leasing of 12.56 MSF ranks second only to the same January to September period in 2016.

FIRE led Midtown leasing in 3Q 2017 with a 25% industry share including Morgan Stanley’s 228,000 SF renewal at 1221 Avenue of the Americas and a 71,000 SF sublease by Apollo Global Management at 1095 Avenue of the Americas. New York-Presbyterian’s 471,000 SF lease at 237 Park Avenue was both Midtown’s largest new lease this year and the largest heath care sector lease in Midtown on record.

Midtown asking rents were stable (up 0.1%) since 2Q 2017 to an average $81.49/ SF. Above-average priced blocks of space were listed at 399 Park Avenue (117,000 SF) and 1675 Broadway (98,000 SF). Pricing was higher at 65 East 55th Street (179,000 SF) and less expensive space was subleased at 777 Third Avenue (99,000 SF) and removed from active inventory. The asking rent average was 2.4% lower year-over-year.

Three separate blocks over 100,000 SF were added to Midtown’s availability rate during the quarter at 340 Madison Avenue (165,000 SF), 1185 Avenue of the Americas (165,000 SF) and 399 Park Avenue (117,000 SF). Despite this new supply, Midtown’s quarterly availability rate decreased by 0.5pp to 10.3%, its lowest level since 4Q 2015. Absorption for 3Q 2017 was positive 1.10 MSF, Midtown’s strongest quarter of positive absorption in more than two years.

  3Q 2016  2Q 2017  3Q 2017
Availability Rate
10.6% 10.8% 10.3%
Average Asking Rent ($/SF/YR) $83.49 $81.40 $81.49
Leasing Activity 4,204,565 3,520,900 4,218,388
Net Absorption (320,566) (397,881) 1,102,482



Quarterly leasing in Midtown South at 3.54 MSF was 11.0% below 2Q 2017 but 17.1% better than 3Q 2016. Midtown South’s 9.30 MSF of leasing through September is greater than the full-year leasing in any single year between 2007-2013.

TAMI tenants dominated Midtown South leasing in 3Q 2017 with a 33% industry share and deals by Amazon (360,000 SF new lease at 5 Manhattan West) and Group Nine Media (99,000 SF renewal/expansion at 568 Broadway). The labor union,1199SEIU, relocated to 498 Seventh Avenue for 578,000 SF, Midtown South’s largest lease this year outside of the Hudson Yards/ Manhattan West submarket.

Midtown South’s average asking rent decreased slightly by 0.3% during 3Q 2017 to $66.09/ SF. The Hudson Yards/ Manhattan West submarket had the largest $/ SF quarterly asking rent increase in Manhattan last quarter, up by $10.62/ SF. At an average $91.14/ SF, asking rents in Hudson Yards/ Manhattan West were only 1.3% behind Midtown’s Plaza District ($92.35/ SF) as Manhattan’s most expensive submarket.

Midtown South’s availability rate decreased by 0.2pp last quarter to 8.4% despite three newly listed blocks of space over 100,000 at 320 West 31st Street, 55 Hudson Yards and 1 Penn Plaza. This is Midtown South’s tightest market since 4Q 2016. Absorption for 3Q 2017 was positive 0.35 MSF.


3Q 2016 2Q 2017 3Q 2017
Availability Rate 7.9% 8.6% 8.4%
Average Asking Rent ($/SF/YR) $67.54 $66.32 $66.09
Leasing Activity 3,021,427 3,978,963 3,539,297
Net Absorption (560,570) 415,033 354,852



Through September 2017, Downtown leasing at 5.41 MSF has already surpassed full-year leasing in both 2016 and 2015. Quarterly, Downtown leasing jumped 61.1% to 1.73 MSF and was more than 70.9% higher than at the same point last year.

Public sector tenants made up nearly half of all Downtown leasing during the quarter with a 45% industry share. The City of New York leased 276,000 SF at 180 Maiden Lane and the New York State’s Department of Financial Services renewed and expanded for 265,000 SF at 1 State Street Plaza.

After 12 consecutive quarterly gains, Downtown’s average asking rent decreased marginally by 0.4% to an average $63.19/ SF. Above-average priced blocks of space were leased at 180 Maiden Lane (276,000 SF) and One World Trade Center (84,000 SF) and taken out of active inventory, but below-average priced space was listed at 88 Pine Street (119,000 SF) and 120 Broadway (115,000 SF). Asking rents were dropped at 300 Vesey Street (138,000 SF). Asking rents were 7.4% higher year-over-year.

Downtown’s availability rate was steady last quarter at 11.0%, the tightest availability since year-end 2008. Two separate blocks over 100,000 SF were added at 88 Pine Street and 120 Broadway. Absorption for 3Q 2017 was flat at positive 0.09 MSF.


 3Q 2016 2Q 2017 3Q 2017
Availability Rate 11.7% 11.1% 11.0%
Average Asking Rent ($/SF/YR) $58.83 $63.46 $63.19
Leasing Activity 1,009,940 1,071,520 1,725,843
Net Absorption 574,946 600,428 87,302



The average price of a Manhattan office building through 3Q 2017 was $960.00/ SF, up 5.5% year-over-year. Midtown Class A values are 4.75% higher since 3Q 2016 to $1,213.00/ SF, reflecting continued upward momentum for capital values.

Notable transactions during 3Q 2017 included the leasehold at 375 Hudson Street and 236 Fifth Avenue, a 90% interest in 50 Hudson Yards and a partial interest in 80-90 Maiden Lane. Looking ahead, there are five pending deals totaling $1.865 billion, including 685 Third Avenue, 1180 Avenue of the Americas, a partial interest in Worldwide Plaza, 19 West 44th Street and 86 Chambers Street.

“Despite a slowdown in transaction activity, there is no shortage of capital from global and domestic sources seeking investment opportunities in Manhattan. With destabilizing factors creating global uncertainty, anticipate additional off-shore capital will flow into Manhattan as the flight-to-safety continues. Coupled with a continued low interest rate environment and strong underlying economic fundamentals, capital values will remain strong as we close out 2017”, noted Richard Baxter, Vice Chairman, Colliers Capital Markets.

(Office sales over $10 million)

YTD 2017 2016 2015 2014 2013
Total Sales $12.0 bil $22.1 bil $24.1 bil $17.4 bil  $25.5 bil
Average Sale Price $318 mil $246 mil $239 mil $191 mil $311 mil
Average Price/SF $960 $898 $867 $698 $700


Additional highlights from Colliers International’s 3Q 2017 Manhattan analysis:

  • The Plaza District led leasing among Manhattan’s 18 submarkets at 1.33 MSF and including Estée Lauder’s renewals of 393,000 SF at 767 Fifth Avenue and 110 East 59th Street and a 99,000 SF new sublease at 777 Third Avenue by Hospital for Special Surgery.
  • For the first time since 2Q 2016, Manhattan’s availability at 9.8% was below the 10.0% considered as market equilibrium. Direct availability (at 8.0%) was its lowest since 4Q 2008.
  • Quarterly availability in Columbus Circle (7.6%), Times Square (9.2%), Hudson Yards/ Manhattan West (6.2%) and Financial District (10.2%) was lower than at any point since the Great Recession recovery began. Midtown South’s Chelsea, Greenwich Village, Hudson Yards/Manhattan West and Soho are Manhattan’s only submarkets with Class A average asking rents above $100.00/ SF.

1 Source: New York State Department of Labor

2 Source: New York State Department of Labor. Unemployment data is not seasonally adjusted.

3 Note: The availability rate is based on actively marketed space scheduled for tenant build-out within 12 months.


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