Post-recession record nears for Manhattan office leasing market
A Colliers International report showed nearly 4 million square feet of Manhattan office leasing activity in October, a 77 percent increase from the previous year. The strong showing, bolstered by several blockbuster deals, kept the market on track to hit a post-recession record in 2018. “In the third quarter, there were no leases closed over 100,000 square feet in Lower Manhattan,” said Franklin Wallach, managing director of Colliers’ New York research group. “In October, demand increased with three separate deals over 100,000 square feet.” The City of New York inked a deal for 420,000 square feet at 90 Church Street, the New York Police Department leased 106,000 square feet at 375 Pearl Street and law firm Cahill Gordon & Reindel signed on for 201,621 square feet at 32 Old Slip in the Financial District. Brooklyn also had a strong showing in October, with Zenith Energy’s 324,075-square-foot Greenpoint lease and a 153,820-square-foot deal by real estate firm Property Resources in Bedford-Stuyvesant.
Real estate boom in Brooklyn sees return to ‘reality’
Despite strong leasing activity, Brooklyn saw investment sales dwindle in 2018. Transaction and dollar volume fell for every asset class, with mixed results for pricing, according to a report from commercial brokerage CPEX Real Estate. “This past year has been one of hesitation in the marketplace,” said CPEX partner Tim King. “There are fewer buyers, and people are being very cautious about chasing something, or overbidding.” Office sales had the starkest decline, according to CPEX, with dollar volume down by half at $606 million spent in the first three-quarters of 2018, compared to $1.3 billion during the same period last year. Pricing fell 17 percent, to $402 per square foot, and mixed-use sales also took a beating, with 33 percent fewer sales trading at an average $483 per square foot, the latter a 6 percent discount from the previous year. But it wasn’t all bad news. Although sales activity was also down for retail and multifamily, price per square foot increased nearly 10 percent for standalone retail and 2 percent for walk-ups. “It’s a return to reality,” King said.
Retail asking rents decline in 15 of 17 Manhattan corridors
After reaching “unsustainable levels” three years ago, a retail correction has continued in Manhattan. Average asking rents decreased in 15 of 17 retail corridors by an average of 25 percent since the height of the retail rally in late 2015, according to the Real Estate Board of New York’s 2018 fall retail report. The steepest drop was on Bleecker Street in the West Village, where asking rents for ground-floor retail space averaged $293 per square foot, a 37 percent decrease from 2015 and the first time in a decade that the average asking rent fell below $300. Year-over-year, rents increased in just two corridors — up 14 percent along West 125th Street in Harlem and 5 percent on Broadway above West 72nd Street on the Upper West Side. Midtown had some of the worst-performing corridors. Average asking rents on Upper Fifth Avenue fell 24 percent, to $2,973 per square foot, and dipped 29 percent, to $925 per square foot, along East 57th Street.
Tech tenants pay a premium in Midtown South
The technology sector has become a strong driver of office leasing in Manhattan, and Midtown South is reaping most of the benefits. Neighborhood rents increased 10.1 percent between 2016 and 2018, despite mostly flat Manhattan office rents during that time frame, according to a CBRE report ranking the 30 largest tech markets in North America. “Midtown South is the epicenter of the tech market in New York,” said CBRE director of research and analysis Nicole LaRusso. “It’s their preferred location.” The tech sector has boosted average Midtown South rents from $30 to $40 per square foot several years ago to $80 today, she said. And with supply unable to keep up, tech outfits are now paying a premium for space. As of the second quarter of 2018, tech firms paid an average $88 per square foot, a 27 percent premium over the average taking rent, and a 10 percent premium over asking, according to CBRE. Tech leasing has been consistently robust throughout Manhattan, with more than 1 million square feet leased by the tech sector every year for the past nine years, excluding co-working tenants such as WeWork, which primarily lease to smaller tech firms.