NEW YORK CITY—The city's office market packed a punch—not to mention a few surprises—in 2014. Velocity, absorption and rent all posted impressive growth, yet several new trends emerged that likely will continue this year, said CBRE's Mary Ann Tighe, CEO, New York tri-state region and Peter Turchin, vice chairman, Wednesday at the company's Q4 2014 and year-end briefing, in Midtown.
At just shy of 30 million square feet, Manhattan's office leasing activity last year was 20% above the nearly 25 million square feet of leasing done in 2013. Absorption rose last year too, jumping by a staggering 5.2 million square feet to 5.39 million square feet from the previous year's 200,000-square-foot total. Even the average asking rent Downtown—which heretofore had been a value play for occupiers—reached an all-time high of $51.97.
“This is the definition of a really good year,” Tighe declared, also noting, “this was the year of the large transaction. We had 58 deals of over 100,000 square feet of space done in 2014, compared to 43 in 2013.”
Continued Turchin, “We had 33 relocations of more than 100,000 square feet last year, compared to 17 in 2013. The overall square footage of those deals was 7.5 million square feet, compared to the previous year's total of 3.4 million.”
Added Tighe, “Midtown started off the year with 11 blocks of space spanning 250,000 square feet or more available and it ended the year with five. Downtown had 10 large blocks vacant in January and was down to four by year-end.”
Midtown South's star continued to rise in 2014, with leasing reaching 6.22 million square feet, which is 48% higher than all of 2013's 4.19 million square feet. The submarket's availability rate finished the year at 8.6%, down 80 basis points from 9.4% in the previous quarter and 10.2% from a year earlier.
“It's the market that just keeps getting stronger,” said Tighe. “This market has become a destination.”
So much so that value-driven tenants are heading to Midtown as an alternative, noted Turchin. Average asking rents in Midtown South actually dipped slightly to $66.38 yet they're up 3% year-over-year.
In Midtown, leasing activity totaled 4.15 million square feet during Q4, coming in 7% higher than the five-year quarterly average of 3.89 million square feet and 3% higher than the 4.01 million square feet of activity recorded during Q3. In 2014, close to 17 million square feet of leasing activity was recorded, 12% higher than the slightly over 15 million square feet of leasing during all of 2013.
Downtown, leasing activity during the fourth quarter was strong at 1.69 million square, a 32% spike over the five-year quarterly average of 1.28 million square feet. The availability rate improved 70 basis points to 11% from the 11.7% recorded during Q3 2014 and the average asking rent finished at $51.97 per square foot, an all-time high.
Brooklyn office space has become a factor when conducting tenant tours, noted Tighe, but one area that hasn't benefitted from the market's strong fundamentals is Third avenue.
The area is weaker than others because of the prevailing asset type there, which is mid-century modern architecture. “It's not about where Third avenue is, it's about what it is,” said Turchin. “No one knows what to do with it.”
Added Tighe, “It's an untapped opportunity. We haven't broken the code there and the first architect that does will have a lot of business.”
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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.
