With asking rents still far below the peaks of 2008, Manhattan office tenants leased up new space at the fastest clip in over four years, a new report covering the fourth quarter from commercial services firm Cushman & Wakefield says.
Businesses inked 7.5 million square feet of new office space in the fourth quarter, the most since the third quarter of 2006, and 50 percent higher than the 5 million square feet leased in final quarter of 2009.
For the full year, commercial firms leased 26.3 million square feet, up 61 percent from 2009, when companies took 16.3 million square feet.
In addition, Manhattan investment sales activity rose sharply in 2010 compared with the prior year, and retail leasing gained strength in core Manhattan markets, the report, released at the quarterly breakfast briefing in Midtown, shows.
The overall market was strong, Joseph Harbert, COO of the New York metro market, said at the briefing, noting that strong volume should continue in the first quarter.
But one concern was that the high level of leasing could be pent-up demand combined with low prices to artificially drive demand.
“Unless employment starts to catch up, we could see a little flattening [in velocity],” he said. “The question is if the prices go up high enough to deter people going forward.”
The increase in leasing activity drove down office vacancy rates in the fourth quarter. For Manhattan overall, the vacancy rate dropped to 10.5 percent from 10.9 percent the quarter earlier. That was the first year-over-year drop in the office vacancy rate since 2007, the report says. The Manhattan vacancy rate peaked at 11.6 percent in March of last year.
The Midtown vacancy rate fell to 10.6 percent in the fourth quarter, from 11 percent the prior period, with deals such as French bank Société Générale taking 408,000 square feet at 245 Park Avenue.
In Midtown South, the vacancy rate fell in the fourth quarter to 8.6 percent from 9.2 percent on leases such as the Whitney Museum taking 26,974 square feet at 300 Park Avenue South; and Downtown the rate fell to 11.5 percent from 12.1 percent, following leases such as Wells Fargo Advisors taking 26,530 square feet at 1 Liberty Plaza. But asking rents remain below their peaks of 2008, when Midtown was in the mid-$80s per square foot, and Midtown South and Downtown were in the mid- and low-$50s per square foot.
Asking rents for Manhattan overall in the fourth quarter were $54.34 per square foot, up from the third quarter, but still down compared with the fourth quarter 2009, when they were $55.25. Asking rents in Midtown were $62.46 per square foot in the fourth quarter, up from $61.82 per foot one year ago.
But Midtown South and Downtown are still lower than they were one year ago. Midtown South was $44.73 per square foot in the fourth quarter, up $0.48 per foot for the quarter but below the $47.17 per foot at the end of last year. Downtown continued to bounce along the bottom, slipping in the fourth quarter by $0.30 per foot to $38.78 per square foot, and below the asking rent one year ago of $40.36 per foot.
Investment sales rose for the full year 2010 by 290 percent in Manhattan to $13.6 billion compared with $3.5 billion in 2009, Cushman reported. That activity was led by the nation’s largest acquisition of the year, Google’s buying 111 Eighth Avenue for $1.8 billion. That still remains far below the $48.5 billion in Manhattan sales in 2007.
Retail in Manhattan’s prime corridors was strong in the fourth quarter, with asking rents rising and availability rates declining in select corridors.
In Soho, one of the city’s strongest shopping districts, the average asking rent for ground floor space ticked up to $277 per foot from $258 one year ago, and availability rate fell to 8.4 percent from 12.6 percent in the fourth quarter 2009.
But the report was mixed for the city’s most exclusive area, on Fifth Avenue from 49th to 60th Street. Asking rents dipped in the fourth quarter to $2,254 per square foot from $2,317 per square foot in the third quarter 2010. And the availability rate in the same period rose to 11.3 percent, up from 8.1 percent. At the end of 2009, the asking rent was $2,000 and the availability rate was 3.3 percent, Cushman figures shows.