Despite Uncertainty, Office Rents Continue to Mount

McCarthy

NEW YORK CITY-Cushman & Wakefield’s third quarter report for Manhattan’s commercial real estate market shows office rents surpassing previous all-time highs for the three submarkets of Midtown, Midtown South and Downtown, despite uncertainty in the financial markets and a decrease in overall leasing activity year-to-date. Year-to-date leasing activity for Manhattan measured 18.3 million sf at the end of the third quarter, down about 2.5 million sf–or 12.3%–from this time last year.

“The slowdown in activity may be attributed primarily to a lack of supply and the historic highs to which rents have risen,” said Joseph Harbert, Cushman & Wakefield’s CEO of the New York Metro Region at this morning’s Market Outlook breakfast presentation. “Limited office space and continued demand has put upward pressure on rental rates, to the point where we have exceeded record highs.”

[IMGCAP(2)]Though year-to-date leasing is off, third quarter leasing activity was in fact stronger than it was in either the first and second quarters according to Kenneth McCarthy, managing director of C&W’s New York Metro Region Research. More than 6.5 million sf was leased from July through September, compared to 6.3 million sf in the second quarter and 5.4 million sf in the first quarter.

Harbert

“If you look at year-to-date activity for the previous five years, we are currently above average,” Harbert said. “Many tenants are in the market for space and new leases are still being signed, but not at the pace we saw in 2006.”

Midtown South was the only submarket charting increased leasing activity, up 36% year-over-year compared to this time last year. America Online’s 144,400-sf commitment at 770 Broadway was Midtown South’s largest new lease of the third quarter, McCarthy noted. Despite a lag in year-to-date leasing activity, Manhattan rents continued to rise in the third quarter, up more than 37% from this time last year. Midtown, Midtown South and Downtown asking rents all hit record highs, reaching $74.47, $45.83 and $45.86, respectively.