History shows that the stronger the job market is, the stronger Manhattan’s office market becomes. This correlation helps explain the continued overall strength of the borough’s commercial market as it eases into summer.
“It’s really uncanny,” said Tristan Ashby, an assistant research director at Cushman & Wakefield, a brokerage that factors employment numbers into its projections for the Manhattan office market. “If you could tell me what office employment will be in 2008, I could give you pretty much the office market.”
A graph from Cushman & Wakefield and Moody’s Economy.com tracks Manhattan office occupancy and the borough’s number of office-based jobs since 1987. It shows two lines that generally rise and fall in tandem. For instance, in late 2000 and early 2001, the city’s office-based job market rose out of the ashes of the national recession. Guess what? Manhattan’s office occupancy rate climbed above 95 percent at the same time — a now 18-year peak.
The correlation between jobs and the office market is not perfectly aligned, though; other factors go into diagnosing the health of the Manhattan market and divining its future. Still, the relationship is close. “I think that there’s an absolute correlation,” said Jeff Hipschman, a senior vice president at CB Richard Ellis partly in charge of its market research. “Is it a one-for-one correlation? No one knows.”
But the office market continues to tighten as the job market looks ever rosier. New York City’s unemployment rate tumbled to 5 percent in May, its lowest level since July of 1988, according to the state Labor Department. More New Yorkers, in fact, were employed — 3,608,200 in May — than ever before, according to the department’s numbers. The city added 42,000 jobs between April 2005 and April 2006.
And the overall Manhattan vacancy rate stayed the same from April through May, at 7.2 percent, according to brokerage Newmark Knight Frank.
Midtown
In Midtown, the vacancy rate dropped from 5.9 percent in April to 5.7 percent for May, according to Newmark. It’s not surprising in a submarket that saw May’s biggest single new lease for Manhattan.
Law firm Seyfarth Shaw inked a 100,000-square-foot lease at the future New York Times headquarters on Eighth Avenue; that building’s occupancy is expected in 2007. Another law firm, Duane Morris, signed a major Midtown lease in May for 81,897 square feet at 1540 Broadway. Such large leases, according to Newmark, contributed to the nearly 2.7 million of commercial square feet absorbed in Midtown during the first five months of 2006.
As tenants absorb more Midtown space, landlords keep raising rents. By May, the average asking rent was $56.98 a square foot, Newmark reported, up more than $2, on average, from the start of April and more than $3 from the first half of 2005.
Midtown South
May was also a good month for landlords in Midtown South. The average asking rent in that submarket climbed 53 cents in May from April to $35.63 a square foot, according to Newmark. The average was $31.21 a foot in May 2005.
Leasing activity in May in Midtown South, though, was mixed. The submarket’s vacancy rate did dip — from 6.5 percent in April to 6.3 percent by the end of May — but May also saw 56,010 square feet of negative net absorption, suggesting that the pace of leasing is not nearly as brisk in Midtown South as it is in Midtown.
The biggest May lease in Midtown South, Newmark reported, was Federated Department Stores’ 160,000-square-foot renewal at 11 Penn Plaza; 50,000 feet of that was expansion space.
Downtown
If Midtown South’s leasing activity in May was uneven, Downtown’s was disappointing. The submarket’s vacancy rate climbed from 9.7 percent in April, according to Newmark, to nearly 12 percent in May. Also, net absorption was negative in May at 369,260 square feet; still, for the first five months of the year, absorption has been positive Downtown at more than 923,000 feet.
Landlords seem to have taken note of the sluggish leasing pace Downtown: Average asking rents declined in May from April by 22 cents, reaching $33.96 a square foot.
In Manhattan overall in May, the average asking rent for commercial space jumped from $43.25 a foot in April to $44.10, a reflection of the borough’s continually tightening commercial market, a tightening linked closely to its strong job market.