The total square footage of the Manhattan office market, which has been stable at just over 390 million since 1990, will see a net increase of 20 million square feet by 2020, reaching a new record high of 414 million square feet, according to figures released today at Cushman & Wakefield’s semi-annual market briefing.
The city’s first large hike in net space in more than two-and-a-half decades is the result of an increase in office development, combined with a limited number of expected conversions of today’s current aging towers into residential buildings. The previous record, the figures show, was 400 million feet, in the 1990s.
Cushman predicts the new space won’t constrain pricing, however, given the expected growth in the number of office users in Manhattan.
“This represents the first time in the last several decades that we are going to see some spec development,” Bruce Mosler, chairman of global brokerage for Cushman, said. “And I am very optimistic.” He was speaking at the briefing held in Midtown.
Tenants in the so-called TAMI sector — technology, advertising, media and information — are replacing those in the financial sector as the biggest users of office space in Manhattan.
“Midtown is going to change, potentially. I think we are going to see a more robust sense of international, of multinational tenants, service tenants. Those folks will make up the predominant players — perhaps — in Midtown in the future,” Mosler said.
The anticipated increase in employment in the city, however, will likely keep rents on the rise, even as the amount of space increases for the first time in a generation. “Total employment in office-using industries has fully recovered from pre-recession levels and is projected to continue rising in the next several years,” Kenneth McCarthy, the senior managing director of research for Cushman, said in an email.
The firm expects Class A Midtown office rents to rise by a 5.3 percent in 2014. While a healthy gain, the figure is a downward revision from an estimate released in December, when the firm predicted that leasing prices would increase by about 7 percent this year.
Mosler did have words of caution for the investment sales market, though, which he said has moved into riskier territory.
“The worry that I think we have to have — particularly in Midtown, where rents have risen but not spectacularly — is can we underwrite to these new numbers [that] we are seeing in the capital markets sector? That is something to watch out for in the future,” Mosler said.
Overall, the first half of 2014 has been strong, the firm reported, with increases in average asking rents in all three submarkets.
The overall asking rent grew by nearly 5 percent over the past year to $64.82 per square foot.
In Midtown, the average asking rent was $70.82 per foot, up 3.8 percent over the last year, while in Downtown it was $49.21 per foot, up 7 percent. Meanwhile in Midtown South, the average asking rent was $60.17 per foot, up 1.2 percent from this period last year, the Cushman figures reveal.