NEW YORK CITY-All signs are that Manhattan has become a landlord's market, Joseph Harbert, COO of Cushman & Wakefield's NY Metro region, reported at the company's first quarter results breakfast this morning. "What happens in a tight market with low vacancy and prices going up is, if demand increases, we could run out of space. There is a serious lack of new supply."
While doubts over World Trade Center development persist, Harbert explained that it is everyone at Cushman & Wakefield's view that all of the space currently proposed for the site "needs to be built. There is nowhere else to go. If we don't do this, it will have a very negative impact on New York City." Along with its usual market analysis, C&W issued a special report on new construction bringing attention to the few projects currently adding space to the constrained office market.
Meanwhile, the majority of class A office leases signed this year have been in the highest rung of the market. In the first quarter alone there were 15 office leases in 11 different buildings at more than $100 per sf, compared to just 10 such leases in all of 2005. "We've seen a dramatic increase in the number of leases in the top end of the market," Harbert said. "That rarefied stratosphere has become less rarified." Average asking rents for Manhattan office space have reached $43.20 per sf--up nearly $3 from year-end 2005 and their highest point in three-and-a-half years.
Although rents were rising, leasing activity actually slowed, totaling 5.4 million sf, down 19% from Q105. The overwhelming majority of those leases--led by Bank of America's 522,000-sf grab at One Bryant Park--were in Midtown, yet Midtown's vacancy rate for all classes of space remained flat at 7.8%.
While the Midtown South submarket is not a central business district in the traditional sense, it actually posted the lowest vacancy of any CBD in the country, at 6.2%. Midtown South, meanwhile, was the only one of Manhattan's three major markets to display positive absorption in the first quarter, with Downtown forced to swallow the majority of the 1.7 million sf added to the market at 7 World Trade Center. Within Midtown South, Hudson Square continues to assert itself as one of the city's up-and-coming submarkets with more than 258,000 sf in deals closed so far this year, accounting for 31% of Midtown South leasing. "Hudson Square has been very hot and it is continuing to grow," Harbert said.
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