At the end of June, Downtown Manhattan's vacancy rate declined to 6.7%, an unprecedented drop from 11.2% this time last year, noted Kenneth McCarthy, managing director for New York area research for Cushman & Wakefield.
Commercial real estate experts attributed the decline to a 68% increase in leasing activity Downtown in the first six months of 2007, for a total of 2.2 million sf, according to Joseph Harbert, Cushman & Wakefield's COO of the New York Metro Region. "This is one of the largest declines in vacancy we've recorded in recent history," he noted. "For a market recording a double-digit vacancy just 12 months ago to now be resting under equilibrium is quite remarkable."
Harbert, who mentioned that equilibrium is typically 7% to 9% vacancy, attributed the decrease in availability in part to record rents in Midtown and a lack of space in Midtown and Midtown South. "Some tenants are being priced out of Midtown and are unable to find adequate space in Midtown South," he said. "But we're also seeing tenants from a diverse range of industries that genuinely want to operate Downtown."
Harbet explained that tenants are aware of the positive momentum and are looking forward to becoming part of the revitalized community there.
Healthy leasing activity and a decrease in availability put upward pressure on asking rents, most notably in premier properties. Class A asking rents Downtown jumped $15 to more than $50 per sf at midyear 2007, up from $35 at midyear 2006 and surpassing class A asking rents in Midtown South.
"Midtown leasing activity is off nearly 20% from this time last year," Harbert said. "We are seeing some price resistance, but it has also become difficult to find space as the market has tightened."
Park Avenue and the Madison/Fifth Avenue submarkets were home to an increased number of high-end leases during the first half of 2007. At midyear 2007, there were 18 leases with taking rents in excess of $125 per sf, compared to 16 in all of 2006.
The Manhattan investment sales market finished the first half of 2007 with $34.1 billion in sales closed and under contract, up more than 83% from the $18.5 billion closed and under contract at midyear 2006.
"We ended 2006 with a record-breaking $34.7 billion in sales closed," Harbert said. "It's safe to say we're on pace to easily break that record."
Investors were increasingly focused on class-A office product during the first half of 2007, with premier properties accounting for 62.2% of all sales closed and under contract, compared to 39.3% at this time last year.
According to Harbert, it's no longer just the Midtown trophy properties that are being eyed. Capital committed to Downtown office buildings increased significantly, reaching more than $2.3 billion at midyear 2007, up from just $647 million at this time last year.
Manhattan retail rents continued their upward climb during the first half of 2007. According to Harbert, there is a constant and steady demand from a wide variety of retailers. Continued strong demand for a limited amount of space has pushed rents to new highs. Madison Avenue rents experienced the largest increase, passing the $1,000 per sf mark. At midyear 2007, average asking rents on the famous corridor reached $1,019, up $134 from this time last year.
Fifth Avenue held strong as the most expensive retail street in the world, with asking rents above 49th Street at $1,500 per sf. At midyear 2007, there were no direct availabilities on the Street. According to Harbert, last year's Gucci lease at Trump Tower solidified Fifth Avenue as the destination for both luxury and world-class brands and the continued interest from retailers validates current asking rents.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
