The Real Deal New York

Vacancy rate flat, even as Midtown South blossoms

Cushman & Wakefield: companies are making more efficient use of office space

July 10, 2012 04:00PM
By Guelda Voien

From left: 111 Eighth Avenue, owned by Google and Cushman & Wakefield CEO Glenn Rufrano

Midtown South remains a bright spot in a generally slow office leasing market, Cushman & Wakefield brokers and executives said at the company’s mid-year media briefing, held today.

Still feeling the “glow of Google,” Midtown South continues to see a surge in rents, including a 29 percent increase in asking rents for office space in Chelsea, year-over-year. Andrew Peretz, an executive vice president at Cushman, attributed the growth to the neighborhood’s cultural attributes. “People want to be around other young, good looking people,” Peretz said.

Overall, however, Manhattan’s vacancy rate is flat, at around 9 percent – even though employment numbers improve. Ken McCarthy, managing director of research at Cushman, said that companies are “using space more efficiently,” housing more employees in less space.

Throughout the borough, some 5.4 million square feet have been leased so far in 2012, which is slightly less than the 10-year average of 6 million by mid-year. Also, renewals account for a larger percentage of total deals — up to 38 percent, year-to-date, from 21 percent in all of 2011.

In Midtown, average rents were up about $3 per square-foot year-over-year, to $66 per square-foot, but vacancy was nearly 10 percent.

Downtown, things were worse, with even more space slated to come online soon, in the wake of Nomura and Deloitte‘s departures from the market for Midtown. The spread between asking rents Downtown and Midtown is now at $20 per square-foot, Frank Cento noted, and the spread between Downtown and Midtown South is $11 per square foot. As a result, would-be tenants may be offered incentives and concessions to lease Downtown. “Virtually every landlord does full turnkey installation” [at their own expense], said Cento. “You’re not getting that in Midtown or Midtown South.”

Although leasing is slower than what the city is used to, its office market is still healthier than in many other U.S. markets, brokers noted. And in investment sales, New York City continues to outpace the rest of the U.S., representing 10 percent to 12 percent of total investment sales nationally, with the sector expected to grow to $32 billion by the end of the year, per Cushman’s numbers.

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