Fragomen plans to move to Midtown to 1400 Broadway.

NEW YORK CITY—Manhattan office leasing activity totaling 7.4 million square feet in Q3 2017 is 12% above its five-year quarterly average. The CBRE quarterly report states year-to-date, Manhattan has seen nearly 21.1 million square feet of leasing activity, 24% ahead of last year. These figures slightly differ from the Colliers International Q3 office report that notes Manhattan posted 9.48 million square feet of leasing activity. However, both reports are bullish on the borough’s office rentals.

CBRE reports the average asking rent was $73.98 per square foot, basically the same from prior quarters and year-over-year. The availability fell to 11.7% from Q2 2017 but was up 30 basis points from a year ago.

“With strong employment growth and an active roster of FIRE, TAMI and government tenant leases, the Manhattan office market continues to perform well,” said Nicole LaRusso, director, research & analytics, CBRE Tri-State. She points to Midtown’s particularly strong quarter as a driver.

Midtown’s leasing activity totaled 4.84 million square feet, outperforming its five-year quarterly average by 19%, with a quarterly net absorption at 1.55 million square feet, its highest in two years. The availability rate dropped to 11.6%, its lowest level since May 2016. The Penn Station submarket experienced 3.09 million square feet of year-to-date leasing activity, with financial services accounting for 33% and technology at 9%.

Downtown leasing activity totaled 1.43 million square feet, an increase of 19% from the prior quarter and 9% above its five-year quarterly average. Co-working tenants made up 16% and government tenants accounted for 30% of the office tenancy. The trend of tenant relocations to this area continued, bringing total migration to Downtown to approximately 1.5 million square feet, year-to-date.

CBRE also reported Guardian Life Insurance and immigration law firm Fragomen announced plans to relocate from Downtown to Midtown. Downtown office availability remained unchanged quarter-over-quarter with average concession packages now at $83 per square foot with 12 months of free rent.

In a GlobeSt.com interview, Hugh Kelly, Ph.D. in CRE, special advisor to Fordham University Real Estate Institute, notes that as Midtown and Downtown are the largest areas, it is expected that they would normally have the greatest absorption based on their size. Kelly also says, “The huge investments post-9/11 go a long way.”

In providing historical context, Kelly explains that building development did not occur downtown in the 1950s because the city’s economy began to migrate to Midtown. With movement to the suburbs, offices developed around Penn Station and Grand Central Terminal. Construction was not happening in the 1940s because of the war, nor in the 1930s because of the Depression.

“Downtown was very old, starting to see a revival with development of space at the World Trade Center and World Financial Center but half of what was built was destroyed within a matter of a few hours,” says Kelly, referring to the 9/11 terrorist attacks.

However, the focus on rebuilding the area resulted in the developing the city’s newest most environmentally effective buildings with modern designs, which captured the TAMI companies as tenants and generated movement into the area. Thus, Kelly says the Downtown office leasing statistics are unsurprising.

CBRE reports in Q3, Midtown South did not capture large deals. Its leasing activity at 1.14 million square feet was 8.8% below its five-year historical average. Transactions less than 25,000 square feet dominated the deals in this area, comprising 59 percent of leasing activity. The average asking rent remained the same from the prior quarter but is 4% higher from a year ago. However, Kelly points to developments such as Hudson Yards in this area and advises real estate watchers to look beyond quarterly data.

As to Manhattan’s overall strength in the office leasing, Kelly credits the city’s strong economy that has evolved beyond the engine of finance and into areas such as technology. Google’s coming to New York, the development of the Cornell Tech campus at Roosevelt Island and the bid for Amazon’s headquarters are examples of its economic investments.

Kelly also says New York has made a point to remain one of the great world cities. So, as other international companies expand, including those from China, South Korea and Japan, they look to establish a foothold, opening offices and bringing capital.