The Real Deal New York

Manhattan office availability lowest in nearly six years

Big leases squeeze space Downtown

July 08, 2014 12:01AM
By Julie Strickland

View from Brookfield’s 5 Manhattan West Redevelopment Project (Source: Brookfield Office Properties)

The Manhattan office market roared on in the second quarter of 2014, as demand surged Downtown as availability declined in Midtown.

According to the Second Quarter Manhattan Office Market Report from commercial brokerage Cassidy Turley, Manhattan Class A office rents hit an average ask of $74.86 in the second quarter, up 8 percent from $69.29 in the same period last year. Availability dropped 30 basis points to 10.1 percent, the lowest rate in 23 quarters.

A total of 43,971,272 square feet was available in the borough overall, and Manhattan had an absorption of 1.45 million square feet, bringing the mid-year total to just under 3 million square feet, according to the report.

But the big story, according to Cassidy Turley Vice President of Research, Marketing and Consulting Richard Persichetti, was the drop in availability Downtown. Tenant demand for space in the submarket remained high, and so the availability rate tumbled 120 basis points in the second quarter to 10.9 percent.

Almost 1.1 million square feet were absorbed in the second quarter, fueled by Time Inc.’s surprising 691,382-square-foot lease in Brookfield Place at 225 Liberty Street and the Bank of New York Mellon’s deal to take 358,278 square feet in the same building.

“There’s been some uptick in velocity Downtown, and the area is still the value play compared to the other two markets,” Persichetti said. “You still have rents that are double-digit less than Midtown South and almost $24 per square foot less than Midtown.”

Class A asking rents Downtown, meanwhile, ticked up 5.1 percent year-over-year in the second quarter to $55.22 per square foot, up from $52.54 per square foot.

Midtown South, meanwhile, slipped into the red in the second quarter, with the availability rate jumping 90 basis points to 8.4 percent. Much of that uptick was driven by the arrival of seven buildings on the market. The properties, each with more than 95,000 square feet, opened up opportunities for tenants in what has recently been the tightest of the three major Manhattan markets. The space did not thwart rental growth, however, with Class A asking rents up 11.3 percent to $75.01 from $67.36 last year.

“Midtown South was in the red from a statistical point of view, but there was not a negative impact,” Persichetti said. “There were still historical highs, still increases. New spaces have come online in Midtown South, just counterbalanced to the amount of demand that’s been out there for that market.”

Following a flat first quarter, the office market in Midtown had a strong showing with 1.2 million square feet of positive absorption that led to a 40-basis-point drop in availability to 10.4 percent. Three leases totaling more than 350,000 square feet were signed in the second quarter, boosting leasing activity in the submarket to over 9 million square feet so far this year. Class A asking rents ticked up as well, jumping 6 percent to $82.24 from $77.56 in the second quarter last year.

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