More Closings, Bad News for NJ Unemployment

Garden State Multifamily ‘White Hot,' Office Lukewarm

Retail Leasing Activity, Absorption Up

While year-to-date leasing activity in Midtown is down 35.5% from Q3 2011 through Q3 2012, the overall vacancy rate at the close of Q3 was 9.6%, with 5.7 million square feet of new leasing activity overall. In comparison, 6.4 million square feet was completed in Q3 2011. “Vacancy rates have been relatively stable for the last 12 months, but there have been signs that these trends may be trending up slightly,” D’Avanzo said. “As you might expect, in an environment of fairly stable vacancy rates, rents have remained flat over the last 12 month period. Keep in mind though that these are 20% off the highs in 2008 for Downtown and the Midtown markets, while Midtown South is slightly below 10%, there is a tremendous amount of activity.”

Supply in Midtown has not seen an influx of square footage, which ultimately is skewing the asking rents in that marketplace, he added. The average asking rent for overall Manhattan space totaled $58.83 per square foot at the end of the quarter, which is an increase of 4.8% year-over-year. The class A asking rent is $67.06 per square foot, which is 3.7% higher than a year ago.

The Midtown South market has a vacancy rate of 6.6% percent, up from 6.1% last quarter. The increase can be attributed to the more than 425,000 square feet of space that came into C&W’s statistical sample in the third quarters, including 770 Broadway, 350 Hudson St., 110 Fifth Ave. and 11 Madison Ave. Average asking rents across the submarket was $49.12 per square foot, a 10% increase.

Andrew Peretz, executive vice president at C&W, said because Midtown South is a supply constrained market, tenants have to look at it as a whole. "It is no longer a market where you can call your shots and say I want to be between 14^th and 23^rd – you have to look at it in its entirety," he said.

As a result of supply constrains in the Midtown South market, Peretz said consistent leasing velocity combined with an inventory of available high-quality options are keeping Downtown at an “equilibrium.” According to C&W, Downtown is the only Manhattan submarket that had a year-over-year decrease in the vacancy rate. At the end of the quarter, the vacancy rate was 9.3%. That is up slightly from the 8.9% from last quarter, however, year-over-year, the vacancy rate has decreased 0.6 percentage points. Asking rent has increased $0.73 per square foot to $39.83 per square foot from $39.10 per square foot last quarter. The class-A asking rent totaled $45.19 per square foot, up 4.6% year-over-year.

Peretz says that Midtown South is now $9.29 more expensive than Lower Manhattan for the first time in history, but spillover is likely to occur as vacancy in Midtown South rises. “What we are seeing now is highly appropriate modern space that New York City needs and tenants want,” he says. “I am optimistic that the technology, media and fashion companies that are getting boxed out of Midtown South will realize that the quality of product and the value of it in Lower Manhattan is where they should be.”