Economic, Political Uncertainties Putting Decisions on Pause

Despite the dearth of major lease deals in the second quarter, Midtown South remains one of the tightest office submarkets in New York City.

NEW YORK CITY—The volatile stock market, Brexit and the contentious battle between Presidential hopefuls Donald Trump and Hillary Clinton are all playing a part in a slowdown in commercial office leasing activity here. Brokerage firm JLL says those economic and political forces are causing some tenants and or their real estate representatives to postpone real estate decisions. While JLL reports that building tours were still robust in the second quarter of this year, the 13.21 million square feet of leasing activity recorded in Manhattan year-to-date was down 16.8% as compared with the 15.82 million square feet in deals completed at the halfway point of 2015 . “It is not uncommon to see a dip in activity during a presidential election year or political uncertainty,” says Tristan Ashby, vice president and director of New York research. “A number of large transactions are moving forward and activity could pick up by year-end or spill over into next year. Demand has not left the market, although concessions are increasing and lease closings may take longer.” Manhattan’s overall vacancy rate dropped to 9.9% in the second quarter, a slight decrease from the 10% rate posted in the first quarter of 2016. Year-over-year, the city’s overall vacancy rate grew from 9.7% in the second quarter of 2015. The Class A vacancy rate fell to 10.8% in the second quarter of 2016, a decrease from 11% the previous quarter. Manhattan’s Class A vacancy rate rose from the 10.6% rate posted at the end of the second quarter of last year, however. Overall average asking rents in Manhattan rose to $70.39-per-square-foot this past quarter, a marginal increase from $70.18 per square foot in the first quarter of 2016. Year-over-year, the city’s overall rates grew 4.1% from $67.63 per square foot in the second quarter of 2015. Class A average asking rents rose to $77.18 per square foot in the second quarter of 2016, an increase of less than 1.0% from $76.88-per-square-foot the previous quarter. Year-over-year, Manhattan’s Class A rates rose 3.3% from $74.73-per-square-foot at the end of the second quarter of 2015. Despite the dearth of major lease deals there in the second quarter, Midtown South remains one of the tightest office submarkets in New York City. The Simons Foundation’s lease of the entire 125,000-square-foot-building at 162 Fifth Ave. was the only sizable deal in Midtown South in the second quarter, JLL reports. Midtown South’s overall vacancy rate fell to 6.7% this past quarter, a decrease from 6.9% in the first quarter of 2016. Year-over-year, Midtown South’s overall office vacancy rate dropped from 7.2% in the second quarter of last year. The submarket posted the lowest Class A vacancy rate since year-end 2014. The Class A vacancy rate fell to 5.3% in the second quarter of 2016, a decrease of 10.2% from the 5.9% rate posted the previous quarter. Year-over-year, Midtown South’s Class A vacancy rate dropped 22.1% from 6.8%. Class A average asking rents in Midtown South rose to $81.67-per-square-foot in the second quarter of 2016, an increase from $79.59-per-square-foot in the first quarter of this year. As compared to a year earlier, Midtown South’s Class A rates rose 3.1% from $79.24-per-square-foot. JLL attributes the year-over-year Class A asking rent increase to tight market conditions, along with the addition of space at One SoHo Square and above-market pricing at 860 Washington St.