C&W: 2012 Leasing Will Be Hot

NEW YORK CITY-Cushman & Wakefield reported a very strong year, with intriguing Manhattan office leasing activity and low vacancy rates – two of the many factors prompting Joe Harbert, chief operating officer of C&W New York Metro Region, to state, if a touch carefully, “If we continue at the pace from the last half of the last year into 2012, we’re going to have a good year.”

According to Harbert, 2011 was an “extremely strong leasing year” and saw 51 office deals over 100,000 square feet. He explains that 29 of these were new deals and 22 were renewals. This activity pushed the year-over-year leasing rate to just over 16% from 2010. A “strong component of the local economy,” financial service companies, were responsible for 29.7% percent of these new deals, while media and information leased 25.3%, prompting Harbert to describe the sector as “on fire” last year.

Activity was hot in New York, but it wasn’t burning for the duration of 2011. Ken McCarthy, senior economist and senior managing director at C&W, explains that the second half of the year presented slightly weaker growth than the first, indicating the pace had slowed. However, he observes that, nationally, “things seemed to be improving,” in the industry across all 12 months. For instance, going into 2012, he notes that there are concerns about the state of Europe and how this will affect the US economy. He notes the “underlying dynamics of the US labor market were pretty healthy,” last year with the lowest level of new unemployment claims since 2008 at the year’s close, setting a solid foundation for 2012. Positively, 1.6 million jobs were added last year, which was double the rate in 2010, and leasing activity was up 15% nationally, the prime markets being Chicago, Orange County and downtown Manhattan, creating favorable, if not quite outstanding, conditions as the industry moves forward.

In a different report, Michael T. Cohen, president of Colliers International, holds similar caution when it comes to Europe in 2012. In a recent statement summarizing the Colliers Report, Cohen says full recovery and bigger gains won’t really occur until the second half of next year when, presumably, there is greater certainty about the global economy and outcome of the US election. “We expect to see additional growth by the second half of 2012,” he was quoted as saying, “The New York City real estate market’s short-term outlook is essentially flat, but the longer-term prospects are positive.”

This isn’t to say, however, that 2011 wasn’t a positive year. Harbert describes 2011 as an “extremely strong leasing year”- and a year that saw 51 deals in Manhattan over 100,000 square feet. He explains that 29 of these were new deals and 22 were renewals. This activity pushed the year-over-year leasing rate to just over 16% from 2010. A “strong component of the local economy,” financial service companies were responsible for 32.6% percent of these non-renewal leases, while media and information leased 16.4%.

It was a “very positive year in terms of absorption,” Harbert says, with the most occurring in Midtown. Total absorption in Q4 was just over four million square feet, with activity in Midtown contributing to a little over three million square feet of that total. In the same Manhattan area, Harbert notes Grand Central demonstrated “velocity” last year, adding to its designation as a “barometer” for the market. With a 9.6% vacancy rate at the close of 2011 and the average asking rent at $65.42, Harbert looked positively at the area and explains that this sets “a really good picture for Midtown” going into 2012.

Similarly, Colliers International observes notable Manhattan office developments. Last year, Manhattan saw 23 office building sales and 21 recapitalizations, totaling $13.6 billion. This was the highest level since 2007. The new construction and other transformative activity contributed in pushing asking rents in downtown Manhattan up to $46.41 per square foot. Rents in Midtown South also rose, Colliers found, hitting $41.68 a square foot by the end of the quarter.

In Midtown South, C&W highlights that information and media companies dominated, leasing 49% of the space. Breaking that figure down further, it was determined that printing and publishing companies leased 14.4% and advertising took over 12% in 2011. Online advertising companies held strong, taking over 9.2% of this activity in the area. Harbert says it’s a “vibrant” market, albeit not one that can be described as “large deal.”

Downtown experienced an “uptick” in large deals over last year, Harbert says. Without the big signings, among them the largest lease of the year from Conde Nast, 4,997,517 square feet of space was leased producing a 9.5% vacancy rate. Harbert described this as a “good sign” for the city.

Both Colliers and C&W are looking forward to the further development of New York’s high tech sector – a field that is anticipated to bring growth and jobs to the area. In particular, both organizations feel that the JV between Technion and Cornell, upon which GlobeSt.com recently reported, will have a positive effect on the market going forward. According to the Colliers statement, employment in the high tech sector is up 12 percent from 2007 and with further activity on the horizon, things can only continue to push ahead.

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