Manhattan office rents saw first annual decline since Great Recession
Average asking rents dropped as landlords lowered prices, expensive blocks leased up
Manhattan’s office market saw average asking rents fall in 2017 for the first time in seven years, as landlords lowered prices and more expensive spaces left the market.
Average asking rents declined slightly by 0.7 percent to $72.74 per square foot compared to 2016, according to Colliers International, marking the first annual decline since the Great Recession.
“It’s the first time since 2010 that at the year-end mark, the average asking rent was down compared to the previous year’s end mark,” said Franklin Wallach, managing director of the research group at Colliers. “However, pockets of Manhattan did have their asking rent averages increase in 2017.”
Lower Manhattan stood out as the lone market where asking rents increased year-over-year (up 6.8 percent to $63 per square foot), as all five of its submarkets recorded gains.
The submarkets of Soho, Murray Hill, Hudson Square, U.N. Plaza and the Hudson Yards/ Manhattan West area also saw price increases. In fact, Hudson Yards/Manhattan West supplanted the Plaza District as Manhattan’s most expensive submarket, though its small size – 7.74 million square feet compared to the Plaza District’s 55.3 million square feet –makes it much more sensitive to shifts in pricing.
But both Midtown and Midtown South saw average asking rents decline last year due to a combination of three factors. Landlords with large blocks of space at pricey buildings such as 9 West 57th Street and 399 Park Avenue lowered asking rents, as they face competition from areas like the Far West Side and Lower Manhattan.
Blocks of space like the sublet space the New York Times is offering at its headquarters at 620 Eighth Avenue and the square footage the union 1199/SEIU is leaving behind at 330 West 42nd Street hit the market at below-average pricing.
And finally, large blocks of expensive space priced above the market average – such as the 471,000 square feet New York Presbyterian leased at 237 Park Avenue and the 226,000 square feet Shiseido leased at 390 Madison Avenue – came off the market, skewing the average lower.
“Really in 2017, it was a case of all three,” Wallach explained.
Despite the annual drop in asks, market fundamentals remained strong. Leasing activity was up 10.9 percent on the year to 37.05 million square feet, the second-highest total since 2003. Net absorption – or the difference between space leased and new space added to the market – was positive at 1.26 million square feet, according to Colliers’ metrics. The availability rate ticked down slightly to 10 percent – a figure that’s widely considered to be the equilibrium between a landlords’ and tenants’ market – and sublet availability remained stable at 1.8 percent.