Absorption, the amount of additional space that becomes occupied during a given period of time, is as telling a barometer of the city’s office market as vacancy rates: The higher the absorption number, the healthier the market.
The Manhattan commercial market has been consistently strong over the last 12 months in terms of absorption, with that strength carrying through January into February. In January, net absorption hit 1 million square feet, according to a report from Colliers ABR, out of a total office market of 439 million square feet in Manhattan.
Only once in the 13 months ending Jan. 31, in fact, has the overall Manhattan office market experienced negative absorption. That was in March, when JP Morgan spilled 712,000 square feet at 245 Park Avenue on the market all at once, said Robert Sammons, research director at Colliers ABR.
Otherwise, absorption has been positive, with particularly huge numbers notched in January, October, and November 2005, when, for each of those months, Manhattan overall recorded positive absorption of more than 2 million square feet.
“One dynamic that’s consistent over the last couple of years is the financial services sector’s expansion, primarily in Midtown,” said David Hoffman, executive managing director of Colliers ABR. “That’s really been the main driver [of absorption].”
January 2006’s positive absorption came despite three big office buildings joining the market, including 7 World Trade Center, where 1.6 million square feet remains vacant. The other two big new buildings, the 856,000-square-foot Hearst Corporation headquarters at 959 Eighth Avenue and the 275,000-square-foot 505 Fifth Avenue, are entirely leased and about half-leased, respectively. Absorption in January was also affected, according to Colliers ABR, by the continued conversion of commercial to residential space.
While absorption was positive in January, vacancy rates experienced a rare burst of negativity. After months of consecutive declines, the borough’s overall vacancy rate inched up from 8.7 percent in December to 8.9 percent in January; the vacancy rate for Class A space, after a consistent drop-off going back to at least late 2003, increased from 7.4 percent in December to 7.9 percent last month.
Midtown
Midtown had positive net absorption in January, with an additional 1.6 million square feet occupied in a market with a total of 251 million square feet, according to Colliers ABR.
Not surprisingly, then, Midtown’s vacancy rate dropped further in January, to 7.7 percent from 8 percent in December. The Class A vacancy rate in Midtown also decreased over the two months, from 6.9 percent to 6.5 percent, Colliers ABR reported — tightening from more than 8 percent in January 2005. At the same time, the average asking rent for Midtown office space ticked up 15 cents over December to $50.24 in January. The asking rent for Class A space tickled the $60 mark.
Midtown South
Midtown South also had positive absorption in January, as more than 57,000 additional square feet were leased in a market that has a total of 98 million square feet of office space. The overall vacancy rate for the submarket dropped slightly, then, from 8.3 percent in December to 8.2 percent in January, according to Colliers ABR. This drop came even as the vacancy rate for Class B space, the dominant commercial space bracket in Midtown South, went up from 8.6 percent in December to 9.3 percent in January — but was still much lower than the 12.7 percent rate in January 2005.
Average asking rent in Midtown South went up in January — nearly 50 cents over December, to $32.65 per square foot.
Downtown
Downtown ended January with negative absorption, the only submarket to do so, with 644,000 square feet less occupied space in the 89-million-square-foot office market, largely because of 7 World Trade. The 52-story tower, as of late February, had only three tenants — and, really, of those three, only one major one; Beijing Vantone Real Estate Company signed a term sheet in January for 200,000 square feet. Otherwise, the tower remains largely vacant.
Vacancy was a much-repeated word Downtown in the first month of the year. The overall vacancy rate for Downtown in January was 13.2 percent, according to Colliers ABR, a 2 percentage increase over December, but still lower than the vacancy rate of January 2005.
Seven World Trade did spark a major jump in the average asking rent for Class A space Downtown, Colliers ABR reported. That spiked nearly $6 to $39.62.