NEW YORK CITY—Continuing the trend of mixed reports, Colliers International's press briefing—held Wednesday in Midotwn—on the Manhattan CRE market's performance in 2015 featured some signs of continuing strength and others signaling the beginnings of a correction.
Leasing velocity in Manhattan office fell last year but still came in above the ten-year average, while asking rents rose for the 11th consecutive quarter and investment sales for office properties hit near-record trading volume, the firm reported. The year also brought about market role-reversals, with Downtown recording the largest annual drop in activity as Midtown posted its strongest leasing figures since 2003.
At 31.4 million square feet, overall Manhattan leasing activity in 2015 was down 16.1% year-over-year from 37.4 million square feet, but still 8.4% above the ten-year historical average of 28.9 million square feet. The overall Manhattan availability rate of 9.6% was its lowest level since 2008, and the average asking rent of $71.50 per square foot was just 2.5% below the all-time high of $73.31 per square foot set during the third quarter of 2008. The FIRE sector accounted for the largest share of Manhattan leased square footage, at 36%.
"The Manhattan office market posted another solid year in 2015 as New York is still the most in-demand city in the world among employees seeking a 24/7 live/work/play environment and international investors looking for safe, value-driven opportunities compared to other global markets," said Joseph Harbert, eastern region president. "We anticipate another healthy year in 2016."
Midtown had its strongest year in a dozen years, with 16.7 million square feet of leasing activity. The FIRE sector was behind nearly 50% of that, while TAMI companies lagged at 20%. Availability dropped 70 basis points year-over-year, to 10%, while yearly net absorption was positive 1.95 million square feet.
Average asking rent in the submarket increased 7.8% year-over-year to $80.61 per square foot, its most significant annual increase since 2011 and the first time Midtown's average asking rent crossed the $80 per square foot threshold since 2008.
Leasing activity in Midtown South, at 10.5 million square feet, fell off by 19.2% year-over-year. But leasing activity was 31.2% above the historical ten-year average of eight million square feet and ranked as the second best year of Midtown South activity since 2006. TAMI tenants made up almost one-third of all 2015 Midtown South leasing activity.
At 7%, Midtown South availability was 90 basis points lower than a year ago, making the area the tightest submarket since the fourth quarter of 2007. The average Midtown South asking rent was up 7.4% year-over-year at $66.07 per square foot, a new all-time high.
Offsetting some of the gains in Midtown, Downtown leasing activity for 2015 was 4.1 million square feet, down nearly 50% year-over-year. Downtown was also the only major Manhattan market to post a year-over-year increase in availability, up 90 basis points to 12.6 %.
Despite these factors, Downtown's average asking rent spiked by 10.3% to $57.63 per square foot, another all-time high, resulting in the largest year-over-year increase of all three Manhattan markets. With 2.1 million square feet leased, the Financial District supplanted the World Trade Center as the strongest performing Downtown submarket in 2015. And Tribeca, at $69.59 per square foot, replaced WTC as the most expensive Downtown submarket.
Manhattan office sales volume for 2015 reached $27.3 billion, with record pricing of $996 per square foot, led by the $2.6 billion sale of 11 Madison Ave., the largest office trade of the year. The average 2015 Manhattan office property sale price per square foot was up 39% year-over year, reaching $996 per square foot versus $715 per square foot.
The average transaction size for office sales was $350 million, with foreign buyers accounting for 31% of all 2015 purchases, totaling approximately $8.3 billion. Foreign investment is expected to accelerate this year due to regulatory changes.
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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.
