Following one of the most active years in recent memory, Manhattan’s office-leasing market cooled dramatically during the start of 2018.
The first quarter of the year recorded 7.57 million square feet of deals, down 17.8 percent from the same time in 2017, according to Colliers International.
The drop-off in activity year-over-year could be somewhat expected, given how strong the market was in 2017. Manhattan recorded 37.1 million square feet worth of deals last year, making it the second-strongest year since 2003 – second only to 2014’s 37.4 million square feet.
But even taking a look over a longer timeframe, 2018 is off to a slow start. Leasing activity was nearly 19 percent below the rolling average for the first quarter over the last five years. What’s more, there’s still a robust pipeline of new development and existing product adding to the inventory. Absorption during the first quarter was negative 2.4 million square feet – the lowest absorption for a quarter in nine years.
“Demand slowed this past quarter, year over year, largely because the first quarter 2017 saw the 1.2 million-square-foot Fox/News Corp. renewal,” said Craig Caggiano, executive director for Colliers’ tri-state region. “Looking ahead, we are tracking several large deals in the pipeline, but at the same time there is a significant amount of supply of 100,000-square-foot-plus blocks in existing buildings – especially in Midtown – that have begun, and will continue to enter into our availability rate over the next 12 to 18 months.”
Manhattan asking rents – which don’t reflect the concessions landlords are offering in terms of free rent and tenant-improvement dollars – fell 1.2 percent year-over-year to $73.05 per square foot. The availability rate remained nominally flat at 10.3 percent.
Following a trend that started last year, tenants in the financial services, insurance and real estate (FIRE) industries continued to remain more active than those in the technology, advertising media and information (TAMI) sectors, which had driven leasing activity for much of the recovery following the Great Recession.
FIRE tenants accounted for 45 percent of Manhattan leasing activity during the first quarter, compared to TAMI’s 23 percent share.
JPMorgan Chase’s nearly 420,000-square-foot lease at L&L Holding Company’s 390 Madison Avenue was the largest deal of the quarter. Over the past several quarters, most of the top deals have be inked in new construction projects on the Far West Side and Lower Manhattan.
“It was interesting that the single largest lease this quarter was in Midtown, and not just in Midtown but in Midtown new construction. And not just Midtown new construction but by a large financial services tenant,” said Franklin Wallach, managing director of the research group at Colliers.
Simon and Schuster’s 300,000-square-foot renewal at 1230 Sixth Avenue, Omnicom’s 290,000-square-foot renewal at 195 Broadway, Bank of America’s 189,000-square-foot renewal at 225 Liberty Street and WeWork’s 167,000-square-foot lease at 18 West 18th Street rounded out the list of top five transactions for the quarter.
Leasing volumes were down year-over-year in both Midtown and Downtown, but activity increased in Midtown South, which saw a 50 percent jump over the first quarter of 2017.