NEW YORK CITY-The Manhattan office market hasn't just rebounded from the recession, it's thriving. Both investment sales and leasing are setting records, according to an announcement of a second quarter report from CBRE Group Inc.
Pricing in the investment sales office market during the first half of 2013 has been the strongest since its peak in 2007, says Darcy Stacom, vice chairman, capital markets, CBRE in the announcement. “The market is witnessing the reemergence of many sales vehicles. Joint ventures/recapitalizations remain a healthy portion of the overall market.”
Meanwhile, on the leasing side, Midtown, Midtown South and Downtown all had a strong second quarter, with each submarket out-pacing its respective five-year leasing averages, according to the announcement, while available sublet space has declined drastically.
Midtown logged its strongest quarter of leasing since Q2 2011, with activity outpacing the market's five-year quarterly average of 3.49 million square feet by 29%. Coach Inc.'s condo purchase, and new leases with L'Oreal USA, Inc. and SAP America at the under-construction South Tower at Related Companies' Hudson Yards put the far West Side on the map for office districts. Three of the quarter's five largest deals were renewals, led by Simpson, Thacher & Bartlett's lease at 425 Lexington Avenue. The average asking rent inched down $0.07 to $69.51 per square foot.
In Midtown South, leasing was up 35% from the previous quarter. The technology sector accounted for three of the quarter's top five deals, led by AppNexus' renewal-and-expansion lease at 28 W. 23rd St. The quarter's above-average leasing activity, coupled with several space withdrawals, offset new availabilities brought to market, resulting in 500,000 square feet of positive net absorption. The overall availability rate dropped 70 basis points during the quarter to 10%. The average asking rent rose $3.34, or 6%, during the quarter to $63.44 per square foot. The increase was fueled by the addition of 309,000 square feet of high-priced direct space at 114 Fifth Ave. to the market. Year-over-year, the average asking rent was up 23%, or $11.71 per square foot.
Downtown pulled off its ninth consecutive quarter of above-average leasing, with total activity outpacing the market's five-year quarterly average of 1.03 million square feet by 6%. The quarter's 1.57 million square feet of negative net absorption was fueled by the addition of several large-sized availabilities to the market. The overall availability rate jumped 190 basis points to 15.8%, its highest level since July 2005. The sublease availability rate increased 30 basis points during the quarter to 1.9%. Downtown's average asking rent increased $0.26, or 1%, quarter-over-quarter to $47.13 per square foot. That put the year-over-year average up by $7.84 per square foot, or 20%.
On the sublet front, the percentage of space relative to direct space dropped from a high of 31% of the overall Manhattan office market at mid-year 2009 to 18% of available space at the end of the second quarter 2013, says Peter Turchin, EVP, in the announcement. When comparing this statistic to average asking rents, he charted the impact that the reduction in the percentage of sublease space had on those rents. As the percentage dropped, the average asking rents rose.
“There is no doubt that the drastic and unpredicted drop in sublet availability percentage has had a positive effect on average asking rents,” he says in the announcement. “Sublet space no longer weighs heavily on the Manhattan office market.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
