C&W Barometer Predicts Stable Times for NYC Office Markets

NEW YORK CITY-After starting the year off slowly, commercial office markets picked up speed in 2004 and Manhattan was no exception, according to the Cushman & Wakefield Office Market Barometer. Coupled with Washington, DC, Midtown was the top CBD performer, and the two markets accounted for 7.2 million sf of overall absorption, the report states. In addition, both Midtown and Midtown South ranked in the top 10 for overall net absorption, together, accounting for 4.3 million sf of the 8.3 million sf of positive absorption, says Maria Sicola, senior managing director at Cushman & Wakefield. In fact, all three Manhattan markets were among the top 10 performers across CBD’s nationally, for both vacancy rates and overall asking rental rates, she adds.

“Midtown, Midtown South and Downtown all had overall vacancy rates below the national CBD average of 14.5%. Midtown ranked second, nationally, with an overall vacancy rate of 10.1%, followed directly by Midtown South at 10.2%. Downtown, however, was off slightly from last year, finishing at 13.7%,” Sicola says. Following this trend, Cushman & Wakefield forecasts the Midtown office market to post an overall vacancy rate of 9.36% in 2005 and 8.87% in 2006. Midtown South is also expected to register stabilizing numbers, with an overall vacancy rate of 9.53% expected in 2005 and 8.96% expected in 2006.Several notable lease transactions in Midtown and Midtown South during 2004 helped the market bring in strong numbers. For example, Lehman Brothers signed on for 301,488 sf at 1301 Ave. of the Americas and Wachovia Bank took 162,548 sf at 375 Park Ave. Just a few blocks away in Midtown South, WebMD took 92,300 sf at 111 Eighth Ave. and CSTV signed on for 56,000 sf at 85 10th Ave.Things are slightly different Downtown, according to Cushman & Wakefield. The report forecasts the overall vacancy rate to be 13.52% in 2005 and 12.88% in 2006 and it labels the market “lagging.” However, the firm’s fourth quarter office market report shows leasing activity closed for the year at 4.8 million sf compared to 3.9 million sf in 2003–seemingly showing darker days may be behind the market. Notable lease deals in the market in 2004 included Morgan Stanley signing on for 440,000 sf at One New York Plaza and American Express taking 175,156 sf at Three World Financial. “Because of steady performance during the past year, Midtown and Midtown South fall in the ‘stabilizing’ quadrant of the barometer. Midtown and Midtown South have an above average 18-month outlook compared to the National Average and their performance has stabilized over the past six months,” Sicola explains. “Downtown, however, falls on the margin of the ‘improving’ quadrant, having a less than average 18-month outlook, but has had positive momentum for the past sixth months.”"Markets in the ‘stabilizing’ and ‘improving’ quadrants like those in Manhattan are limited in momentum for the next two years due to tighter market conditions from current strength and above average performance,” she adds.As for asking rental rates, Midtown commanded the highest overall rental rate of all CBD markets at $45.98 per sf. Downtown was third with average asking rates of $31.55 per sf, just behind Washington, DC. Midtown South was close behind with an overall rent of $31.34 per sf. The national average of $24.93 per sf was well below rents commanded in Manhattan, Sicola says.”Looking forward into 2005-06, rental rates for each Manhattan market are expected to rise. Midtown could possibly see rents rise by as much as $2 per sf, while Midtown South rents are expected to rise by over $1 per sf. Downtown is expected to see increases of around $.70 per sf,” she adds.