(Save the date: RealShare New York comes to the Grand Hyatt, New York, NY, October 9.)
NEW YORK CITY-For the second quarter in a row, Manhattan leasing activity was slightly below the long-term average, but select submarkets -- like Midtown South -- are steadily showing growth. According to mid-year data released by Cushman & Wakefield at a media briefing earlier this morning, the Manhattan market saw 5.4 million square feet of new leasing in Q2 2012, falling slightly below the 10-year average of six million square feet.
 “Since 2008, it has been quite a wild ride,” said Bill Hartman, executive vice president at C&W, describing the chart above. “If you look at the brutal and severe and really brutal downturn we experienced in ’08 and ’09, the activity almost completely dried up, followed by some amazing numbers in 2010, finishing up with 10 million square feet in the second quarter of 2011. If you compare that to the second quarter of 2012, it is more than double. For the last 12 months, we went right up the rent line. While it is not extremely robust, it is stable growth.” |
In Midtown, Hartman explained that much of the activity is related to large lease renewals. From Viacom's 1.3 million-square-foot renewal at 1515 Broadway and Citibank's re-up at 601 Lexington, renewal activity for the first half of 2012 came in at 6.8 million square feet, just 1.3 million square feet less than all of the renewal activity recorded in 2011, which Hartman described as a sign of the times.
“When there are difficult environments, there are a lot of renewals, and it occurred again this year,” he said. “You have CEOs and CFOs trying to make decisions on what to do with their occupancy. Important components of that decision are costs and capital expenditures. I don’t think anyone thinks the market we are in now is as bad as it was in 2008-2009, however, the amount of renewals is greater,” noting that renewals are taking up 37.8% of total leasing activity.
But at least one market – Midtown South – is showing strength. Andrew Peretz, an executive vice president at C&W, said the submarket was the only part of the city to see rental increases. Because vacancy rates are at a tight 6.5% – the lowest in the city – pricing is shooting up. According to C&W, average asking rents are $49.93 per square foot in Midtown South, an increase of nearly 11% year-over-year, and class A rents totaled $66.19 per square foot, a jump of 26% from 2011.
“It might just be the healthiest market in the universe,” Peretz said, explaining that tenants are flocking to the market for cultural reasons and not pricing. “Oftentimes decisions are based on economics and efficiencies, but here, it is a totally different dynamic,” he said. “It is based on branding, image and the overall, for a lack of a better word, soulfulness of the space. These decision makers want to attract the best and brightest talent and they want to be located in places that are vibrant, exciting and offer people a 24/7 lifestyle. The transportation is fantastic, and there’s restaurants, bars, shopping and it’s got a critical mass of young, good looking people, and people want to be around other young, good looking people.”
With availability shrinking and rents rapidly increasing, Peretz said the Midtown South market has only seven available blocks of space greater than 100,000 square feet, which has decreased by more than half since 2009. “What we have now is a supply constraint,” he said. “At this point in time, it’s like I say, it’s about image, branding, the ability to crate something that no one else has, and that is far more important than price. People aren’t really asking how much does it cost, they are asking ‘can I have it?’”
As the Chelsea/Union Square area continues to tighten, some tenants are beginning to explore other options. Frank Cento, an executive director at C&W, said Downtown is emerging as an alternative for users who cannot find space in Midtown South. “The demand is only going to increase in Lower Manhattan,” he said, noting that despite the wide spreads in rents, new leasing activity Downtown has exceeded the 10-year average five of the past six quarters. Almost three million square feet has been leased in the first half of the year, putting the market on-pace to exceed the average rate of five million square feet total by year’s end, despite the 1.2 million square feet left behind by Nomura and Deloitte at the World Financial Center.
And like Midtown South, Lower Manhattan is evolving into a "lifestyle" choice, Cento explained. More than 60,000 New Yorkers now live and work in the area. “It’s why people want to be there," he said. "People living in Brooklyn Heights, Hoboken and TriBeCa want to be Downtown.”
Missed the presentation? View it on C&W’s website here.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
