NEW YORK CITY-While it appears 2013 was a record-breaker for the office market in Manhattan, landlords shouldn't expect a repeat performance this year, according to new research from Colliers International.
The Manhattan office market finished last year with a bang, bringing the yearly leasing total to 33.9 million square feet—the borough's highest level since the market's 2005-2007 peak, according to new research from. The fourth quarter saw an unusually high level of leasing—at 13.1 million square feet—with the overall market supported by the economic recovery, near-record property values and major Downtown leases signed just as the quarter ended.
However, sustained but moderate job growth and the continued troubling pattern of little to no growth in the financial sector suggest that it may be a challenge to bring 2014 leasing totals to the same level as the highs that were hit last year.
Across Manhattan's major sub markets in 2013, the office leasing total in Midtown North reached 4.9 million square feet, Midtown South came in at 2.2 million square feet and Lower Manhattan spiked to 5.9 million square feet. The average quarterly rate for the last three quarters of 2013 was 9.7 million square feet, well above the quarterly Manhattan average of 6.2 million square feet sustained over the previous five years.
In addition, Manhattan saw overall increases in average asking rents to $60.41/sf in the fourth quarter, up from $59.14/sf in the third quarter and $56.13/sf in the fourth quarter of 2012. This increase was driven largely by continued gains made in Midtown South and a more moderate increase Downtown.
The average asking rent also was up in Midtown North, but the gain was the weakest of the three major Manhattan markets. Midtown North's average asking rent increased to $69.73 per square foot, up slightly from $69.36 per square foot in the third quarter and 4.6% from $66.66 per square foot in the fourth quarter of 2012. Rent in Midtown South, meanwhile, continued its meteoric rise. The overall Class A average asking rent reached $64.52 per square foot, up 4.8% at an annual rate from $63.75 per square foot in the third quarter and 17.7% from $54.82 per square foot in the fourth quarter of 2012.
The average Downtown asking rent increased in the fourth quarter to $48.60 per square foot, up 1% from $48.48 per square foot in the third quarter. Class A average asking rents reached $51.62 per square foot, up from $48.87 per square foot in the third quarter and 9.6% from $47.09 per square foot in the fourth quarter of 2012. Class A rents are trending up as more expensive space in the World Trade Center becomes available for leasing, Colliers notes.
Despite these overall market improvements, with Manhattan property values at or close to all-time highs, the year-end leasing totals were somewhat skewed by several large renewals and sale leasebacks over the past few quarters, including those for Sony, JP Morgan Chase, Citibank, and CME Group Inc. While these transactions appear large, they actually demonstrate retrenchment in the financial sector and corporations in general, according to Colliers.
"The fourth quarter ended with a flurry of major leases, pushing us to a yearly total we haven't seen since the peak of the market," says Joseph Harbert, president, eastern region, Colliers. "But with an uneven recovery we need to be cautious in our 2014 projections. We expect to see continued overall improvements in the year ahead, and though repeating these 2013 totals will be a challenge, the market does seem to be gaining sustainable momentum."
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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.
