NEW YORK CITY—The city's three office space submarkets all posted positive absorption in the fourth quarter, pushing Manhattan's overall vacancy rate down to its lowest level in two years, according to a new report by Avison Young, obtained EXCLUSIVELY by GlobeSt.com.
Midtown, Midtown South and Downtown boosted the annual absorption total to more than 7.5 million square feet thanks to Downtown's cost effectiveness as well as Midtown and Midtown South's improved fundamentals. The overall office vacancy rate fell to 9.4%, the lowest rate since 2012.
“The fast pace of New York City's economic growth and reductions in the City's unemployment rate continued to bode well for the Manhattan office market at the close of 2014,” Arthur Mirante, Avison Young principal and tri-state president tells GlobeSt.com.
Growth didn't just come from the usual suspects, he notes. “It's also encouraging to see diversity among the industries driving activity, with finance and legal services tenants gaining on the TAMI sector."
Adds Avison Young principal Michael Gottlieb, “While technology, advertising, media and information technology tenants continue to drive a significant portion of the market's overall leasing activity, finance and legal services represented six of the top 10 leases of 2014. The financial services sector, in particular, appears to be making commitments with leases by Bank of New York Mellon, JP Morgan Chase and TD Bank helping to push the financial sector's leasing totals to more than 6.5 msf in 2014 compared with 4.8 msf a year ago.”
At year-end, Midtown class A average asking rents stood at $82.31 per square foot, the highest recorded rent since year-end 2008. The Plaza District continues to be the most expensive submarket in Midtown—and across New York City—with an average asking rent of $138.99 per square foot.
The Midtown market also saw a 9% year-over-year increase in average, the largest such jump in Manhattan. The submarket's performance can be attributed to tenants backfilling space faster than expected, according to the report.
During the fourth quarter of 2014, Amazon signed a 17-year, full-building lease for 470,000 square feet at 7 W. 34th St and law firm Schulte Roth & Zabel added 15 years to its headquarters lease at 919 Third Ave., shrinking its footprint to 284,000 square feet from 350,000 square feet in an early renewal that enabled the firm to lock in today's rents as the market continues to tighten.
Meanwhile, Midtown South continues to be the tightest market in Manhattan, with an overall vacancy rate of 6.8%. Unwavering demand from the creative and technology sectors has driven the vacancy rate to its lowest level since 2006, leading to an uptick in rents. Class A average asking rents closed the quarter at $79.40 per square foot— an increase of 123% from 10 years ago, when the average rent was $35.48 per square foot.
Significant leasing activity Downtown resulted in nearly two million square feet of positive absorption, helping to reduce the class A vacancy rate to 11.3% from 15.9% one year ago—the largest year-over-year drop in vacancy among the three markets. Currently, the overall vacancy rate for Downtown stands at 10.5%. Still considered a value play, Downtown Class A rents stand steady at $53.46 per square foot, with the World Trade Center submarket averaging $68.91 per square foot.
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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.
