NEW YORK CITY-The rebound of the office leasing market in Manhattan continues apace, with vacancy rates declining and May’s 2.6-million-square-foot tally providing the strongest one-month total for new activity since September 2006, according to Cushman & Wakefield. Yet anecdotal reports of a few landlords increasing their rents aren’t borne out by the numbers, which continue to show monthly declines.
“While there is some talk of select rent increases, average Midtown class A asking rents fell 22 cents per square foot to $64.18 from April,” says a report from Bank of America Merrill Lynch. “Rents are now down 35% from the May 2008 peak.” Cassidy Turley makes a similar observation in its report for May, noting that class A rents across Manhattan dipped 59 cents from April to $58.72 per square foot, with overall pricing also recording a slight drop to $48.42 per square foot from April’s average of $48.82 per foot.
Although asking rents have leveled off each month thus far in 2010, vacancy rates have also begun to decline. Cassidy Turley reported a 30-basis point drop in the class A vacancy rate from April’s 12.5%. C&W reported an even steeper decrease of 50 basis points to 12%, representing the largest one-month percentage point decline since January 2007.
The firm put Manhattan’s overall vacancy rate at 12.1%, a drop of 40 basis points, while Cassidy Turley reported a 10-point drop to 13.1%. Merrill’s numbers also vary, with the company’s report on the office sector noting a 10-drop from April’s figure of 13.2%. However, while different firms use different methodologies in measuring office inventory, the point remains that all three firms see a trend of vacancy declines, with the exception of Downtown.
Along with the overall vacancy rate decline in May, C&W observes that the sublease vacancy rate also declined to 2.5% from 2.6% in April. Even so, some large blocks of sublease space went on the market in Lower Manhattan during the month, notably Citigroup with 138,000 square feet and American Express with 90,000 square feet.
Yet in keeping with the improving local economy, the general trend is positive. “The momentum in the market is continuing to build,” Joseph Harbert, C&W’s COO for the New York metro region, says in a release. “The highest quality space is attracting tenants at a rapid pace, which is a clear reversal from the trends evident during the recession.”
C&W’s report followed one issued shortly before the Memorial Day weekend that analyzed the newly released April employment figures for New York City compiled by the Bureau of Labor Statistics. That C&W report found that on a seasonally adjusted basis, payroll employment here rose by 9,800 jobs in April, representing the fourth consecutive month that jobs were added and the first such four-month period of gains in two years.
The jobs were added across a variety of sectors, including financial services, professional business services, retail, and leisure and hospitality. Of those, 6,500 occurred in office-using sectors, marking the largest one-month increase in office-using employment since October 2007.
“It now appears that the recovery is firmly entrenched and we will continue to see employment growth locally in the months and quarters ahead,” Ken McCarthy, C&W’s managing director of New York area research, said in a release accompanying the May 26 report. “For real estate market fundamentals, this is a key positive trend.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
