Office rents in Manhattan are increasing again with the average asking rent reaching $58.90 per square foot at the end of March, a rise of 7.6% year on year, according to the latest report from Cushman & Wakefield.
The three major submarkets, Midtown, Midtown South and Downtown, saw increases of 1.9%, 5.6% and 0.8%, respectively, over the first quarter of 2012.
The rent rise comes as overall leasing activity slowed in the first quarter, totalling 5.8 million square feet, down 24% from 7.6 million square feet in the first quarter of 2011. The leasing slowdown follows a year in which Manhattan office leasing reached the highest total since 2000, with 30.1 million square feet of new leasing activity.
'In 2011 we saw three quarters of strong leasing activity followed by a soft fourth quarter,' said Joseph Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region.
'We're seeing a continuation of that sluggishness into 2012, but expect the second half of the year to be stronger. Even so, we've seen asking rents increase over each of the submarkets, while the vacancy rate has remained flat,' he added.
At the end of the first quarter, the overall Manhattan commercial real estate market had a vacancy rate of 9.1%. Leading the way with the largest year on year decrease in vacancy rate was Midtown South, which closed at 5.9%, down from 6.4% from the previous quarter.
The Midtown South submarket, also known as Silicon Alley, has become the preferred location for media and technology companies on the East coast and stands as the tightest market of all the Central Business Districts in the nation. The class A vacancy in this market stands at only 4.6%.
Although financial services make up a third of the office space user in Manhattan, growth in other sectors, such as technology, has helped New York rebound from the recession.
'New York is not just a financial town anymore. 'While it is and always will be an important financial capital, we've diversified into many other industries and have seen growth in technology, professional services, education and health, leisure and hospitality,' said Ken McCarthy, senior economist and senior managing director at Cushman & Wakefield.
Direct absorption was positive, 323,479 square feet, indicating that landlords saw space taken off the market. This is confirmed by the small 0.1% decline in the direct vacancy rate. However, this positive absorption was offset by more sublease space that came to the market. This caused overall absorption to be slightly negative -372,724 square feet. These two trends roughly offset each other leaving the vacancy rate unchanged.
Although the overall vacancy rate in Manhattan remained flat, the year on year class A vacancy rate decreased 0.6% to 10.1%, with an average asking rent of $67.30, an increase of 7.7% year on year. The class B vacancy rate decreased 1% to 7.8%, with an average asking rent of $41.19, an increase of 1% and the class C vacancy rate, which saw the largest decline this quarter, decreased 2.6% to 6.6%, with an average asking rent of $38.10, an increase of 1.6 %.
The Midtown South class A market, which has seen the lowest vacancy and the fastest asking rent growth, saw rents increase to $67.52 from $57.44. That's an increase of $10.08 from last quarter and a 33% increase year on year. It is also only $4.56 less than the Midtown class A asking rent. The vacancy rate at the end of the quarter closed at 5.4%.
The Downtown Market ended the quarter with a vacancy rate of 9.2%, down from 9.5% last quarter. Asking rents increased to $40.37 per square foot, up $0.49 or 1.2% from last quarter. The class A asking rent closed at $45.24, up 5.1% year on year.
The Midtown market, which closed the quarter with a 9.9% vacancy rate, saw the average asking rent close at $66.70, up $1.28 or nearly 2% from the previous quarter. The class A asking rent increased to $72.08, up 6.4% year on year.
Even with asking rents rising, demand for large space continued this quarter. In the first three months of 2012, there were 13 deals of 100,000 square feet or more completed.
The volume of property sales closed at the end of the first quarter was on par with the total sales volume a year ago at this time. By the end of the first quarter, $5.7 billion in sales were completed, with $1.5 billion currently under contract.
The investment market has been driven by multifamily sales and class A office. Multifamily sales more than doubled year on year volume. It accounted for $1.5 billion or 27% of the total property sales at the end of the quarter, compared to $720 million at this time a year ago. Class-A office space continued to lead the total volume, accounting for $1.8 billion or 32% of the total.
Real estate investment trusts (REITs) led the way in total acquisitions this year, accounting for 39% of total sales, followed by private capital at 29%, institutional investors at 23% and foreign investors at 4%.
The Manhattan retail market performed strongly through the first quarter, building on momentum from 2011. Times Square has seen the largest increase in asking rent year on year of all the retail corridors tracked. Asking rent has increased by $1,210 per square foot since last year, which is an increase of 160%. In 2011, SoHo leasing activity witnessed a resurgence of fashion and luxury commitments.
The traditionally strong SoHo market has experienced a 26% decrease in inventory to a 6% availability rate over the past year. This represents the lowest availability rate since Cushman & Wakefield began tracking the market in the first quarter of 2006 and a historical low for SoHo as well.
The Madison Avenue corridor, stretching from 57th Street to 72nd Street, has seen an increase in asking rents of 26.8% year on year to $1,037 per square foot, which represents two consecutive quarters where asking rents exceeded $1,000 per square foot, the first time since the third and fourth quarter of 2008.
In the Upper West Side corridor, rents increased by $25 per square foot, up 8.3% year on year and the availability rate decreased by 0.6%. Since the fourth quarter of 2011, rents have increased by $27 per square foot, up 9%.
The Third Avenue corridor, which stretches from 57th to 86th Street, has made substantial progress to absorb the higher availability rates of the past three years. Availability has decreased by 44%, now standing at 6.4% down from 11.4%.
The new corridors being added to Cushman & Wakefield's coverage includes Flatiron, which had a first quarter asking rent of $263 per square foot and a 3.5% availability rate, Meatpacking District, with an asking rent of $300 per square foot and a 16.6% availability rate, and Lower Manhattan, with an asking rent of $205 per square foot and an average availability rate of 12.2%.
SOURCE Cushman & Wakefield
