CBRE: Manhattan Office Market's Rebound Continues
- Jan 19, 2012
January 19, 2012
By Paul Rosta, Senior Editor
The office sector’s recovery continues to be hit-and-miss around the country, but in the nation’s largest city, 2011 marked another year of steady improvement. At a briefing yesterday morning, CBRE Group Inc. executives detailed mostly upbeat trends in the nearly 400 million-square-foot Manhattan office market.
“This was a good year for Manhattan relative to the rest of the nation,” said Mary Ann Tighe, CEO of the firm’s New York Tri-State region. Office investors from all quarters continue to covet the city’s properties. Sales of assets valued at $30 million reached $14.2 billion, up from $8 billion in 2010. Cap rates for office transactions hit a four-year low of 5.3 percent. Intriguingly, no single investor category dominated the market; 34 percent of buyers last year were cross-border players, followed closely by institutional investors. Another 25 percent were publicly traded REITs, and 15 percent were private players. That relatively even distribution stems from a growing tendency for investors to partner on larger transactions, Tighe explained.
Last year also brought encouraging news on the leasing front, as a variety of indicators made their best showings in recent years. The Manhattan office market tallied its best net absorption since 2004 — 6.3 million square feet. Pricing also showed continued promise, as average asking rents reached a four-year high of $53 per square foot. Space availability continued to tumble, ending the year at 10.7 percent, a decline of more than 350 basis points in only two years. In the current climate, said CBRE vice chairman Gregory Tosko, “There are opportunities for both tenants and landlords to do well.”
Another telling trend is the increasing number of big-ticket leases. In 2010, 19 leases were priced at $100 per square foot or more. That number more than doubled to 44 last year, the most since 2008. Manhattan’s tenant mix is also shifting. Financial services still accounts for the lion’s share of office space at 26 percent. That proportion has slipped from 29 percent six years ago — an apparently small change that represents a 10 million-square-foot decline. Other industries are picking up the slack, such as law, media and technology, which make up a smaller but growing share of the city’s tenant base.
One factor that will continue to shape leasing trends for some years is the dearth of new product. As recently as the 1980s, developers added 54.6 million square feet of inventory. That robust activity has dwindled ever since, but CBRE estimates that developers are planning 19.3 million square feet of new product by 2016. Although that pipeline would fall well short of historic levels, it would help meet the demand for efficient, sustainable new space in the age of LEED certification.