NYC Office Market Off to a Fast Start

Harbert: “The Manhattan office market is off to a good start in 2016 with several TAMI firms taking more space.”

NEW YORK CITY—The Manhattan office market got off to an exceptional start in 2016. Colliers International reports that leasing activity totaled 9.2 million square feet in the first quarter, a 28.3% increase from the 10-year average and 11% higher than the first quarter of 2015. The overall Manhattan office availability rate fell from 10.7% at the end of the first quarter of 2015 to 9.9% at the end of the first three months of this year. However, the first quarter 2015 availability rate was higher than the 9.6% rate posted at the end of 2015, reversing what had been three consecutive quarters of tightening availability. Midtown’s availability rate dipped from 11.1% at the end of the first quarter of 2015 to 10.6% at the end of the first three months of this year. During the same period, Midtown South’s rate fell slightly from 7.7% to 7.5% and Downtown’s rate decreased from 14.6% to 12.3%. Colliers officials cite a healthy TAMI (technology, advertising, media and information) sector, limited available sublet space and what it terms “the strongest labor force in more than 40 years” as key drivers to the strong Manhattan office market. “The Manhattan office market is off to a good start in 2016 with several TAMI sector firms maturing and taking more space, the local economy still producing new jobs, and continued demand from investors to purchase core assets,” says Joseph Harbert , eastern region president for Colliers International. “Though selective, we also saw downward re-pricing in some properties as landlord ebullience turned to practical reality. There was recognition among owners that upward re-pricing in recent quarters might have gone just a bit too far. This is a normal market adjustment, with rents still at or near historic levels.” Despite the strong leasing activity, Manhattan recorded 1.85 million square feet of negative absorption in the first quarter of this year,  the highest level of negative absorption since the third quarter of 2011. High-priced trophy space— including 390 Madison Ave. (844,000 square feet), 5 Manhattan West (306,000 square feet), and 485 Lexington Ave. (298,000 square feet) — helped drive up overall first quarter asking rents to $72.46-per-square-foot, just 1.2% lower than the borough’s all-time high. In terms of investment sales, Colliers reports total transactional volume in the first quarter of this year reached $6.6 billion, with average Manhattan pricing at the near record level of  $892-per-square-foot. The average transaction size was $468 million, highlighted by the $1.93-billion sale of 787 Seventh Ave. and the $1.7-billion trade of the Equitable Building at 1285 Ave. of the Americas. “While investor sentiment appears to have peaked in 2015, the anticipated more conservative underwriting has yet to have an impact on pricing,” Colliers states in its report. “Demand remains strong from all buyer profiles and interest rates have remained relatively unchanged. There are nearly $10 billion of properties under contract or on the market for sale, indicating that 2016 will likely be a solid year for office investment sales.” In early 2016, Colliers International executives held a press briefing where they released results from the firm’s local  year-end market report . The brokerage company cited mixed signals, showing some signs of continuing strength along with indications that a correction could be on the horizon.