Office leasing in 2011 highest in over a decade

Meanwhile, average asking rents barely budge
By Adam Pincus | January 10, 2012 01:00PM

Manhattan office leasing activity hit its highest level since 2000, with tenants signing new deals for more than 30 million square feet, executives at commercial firm Cushman & Wakefield said this morning at the company’s quarterly media briefing in Midtown.

Only four months ago, as the velocity of office leasing slowed in the third quarter, there were “warning signs,” that the market, while healthy, might weaken, said  Joseph Harbert, COO of Cushman’s New York metro region, during the third-quarter market briefing. But instead, it improved in the fourth quarter.

The 2011 total of 30.1 million square feet was the highest level since 2000, when leasing reached 31.5 million square feet, Harbert said.

The total leasing figures were even higher when renewals were included. There were 38.4 million square feet of deals, Cushman figures show, the highest number since it began tracking such data in 2004.

But despite the large level of leasing, overall asking rents rose in 2011 by about $2.89 per square foot, or just 5.3 percent since the end of last year, to $57.23 per square foot. At the same time, the vacancy rate has declined to 9.1 percent from 10.5 percent in the fourth quarter of 2010.

Financial services firms remained the top leasing industry last year, taking up about 30 percent of all deals for 2011 but information and media surged, accounting for more than 25 percent of new deals despite only occupying about 16 percent of office space, the Cushman data reveals.

“Information technology was on fire,” Harbert said. The market, despite fears last year for a much slower fourth quarter, was, “generally speaking, in equilibrium.”

Tara Stacom, a vice chairman at the firm, noted that there were areas in Manhattan where asking rents were far higher than they were a year ago. For example, average asking rents in the Park Avenue submarket rose by 18 percent to $83.20 per square foot over the past 12 months, Cushman data shows.

Josh Kuriloff, a company vice chairman, said prices will rise this year, and then spike at some time in the next 24 months.

“Overall we will start to see net effective rents — based on our overall forecast — increase through 2012,” he said.

The flat overall leasing pricing is expected to limit the investment sales activity, Nat Rockett, executive vice president at Cushman, said. In addition, prices in riskier neighborhoods further from the city’s core sections “could potentially see value decline,” relative to what the market expected a year ago.

There were $25.8 billion in investment sales in Manhattan last year, which although down from the $47.8 billion peak in 2007, is still the third-highest on record.

On the other hand, Manhattan’s retail market performed much better in asking rents than the office sector. Asking rents in some areas surged from the third to fourth quarters, such as on Lower Fifth Avenue, between 42nd and 49th streets, which rose by 50 percent to $865 per square foot, and in Times Square, where asking rents rose 15 percent to $968 per square foot, the firm reported. But it wasn’t all positive. Asking retail rents in Soho fell by 4.3 percent in the fourth quarter, the company’s data indicates.