Colliers: NYC Office Leasing Ahead of ’12; Sales Prices Near Peak

The largest U.S. office market is on a pace to record 26 million square feet of leasing activity; Class A Midtown sales prices top $1,100 per square foot.
Peter Kozel (standing at left) and Joseph Harbert (right) discuss Manhattan office market and economic trends.

Peter Kozel (standing at left) and Joseph Harbert (right) discuss Manhattan office market and economic trends.

Manhattan’s office market continues to absorb space at a high rate, and the nation’s largest office market is on a pace to beat 2012, according to an assessment by Colliers International.

By the end of the year, Manhattan could tally 26 million square feet of leasing activity, a notch above last year’s total of 23.8 million square feet, reported Joseph Harbert, president of Colliers’ Eastern region.

New York City’s strong economy is helping drive the demand, said Peter Kozel, executive managing director & chief economist for Colliers’ tri-state region. He cited several unusual indicators to explain the trend. Through August, residents paid about $3 billion in personal income taxes, nearly identical to the same period of 2012 and up from $2.4 billion two years ago. Kozel also looked at a key statistic from Goldman Sachs; the company’s net revenue up about $500 million so far this year to $25.4 billion.

“This is a very robust market for 25,000-square-foot to 100,000-square-foot deals,” Harbert noted Thursday at a briefing for Colliers brokers and the media. That market segment accounted for nearly 2.9 million square feet of leasing activity during the third quarter, which translated into 46 percent of all leasing. Absorption was robust during the third quarter as well—3.1 million square feet, as opposed to about 593,000 square feet during the third quarter last year. “We’ve absorbed as much space in the last 10 months as we did all of last year, “ Harbert added.

The declining influence of financial services in Manhattan’s office market has been widely noted, and from at least one perspective, recent statistics bear out the trend. The sector’s share of  leasing activity declined from 26.3 percent through the third quarter of 2012 to 22.2 percent this year.

But Harbert cautioned the audience not to underestimate the role of financial services; despite the apparent decline, financial services occupants still account for the single largest share of new leases. The second -most active sector, business services, edged up from 15 percent at this time in 2012 to 15.7 percent this year. Manhattan’s much-ballyhooed media sector has experienced the biggest drop, declining from 14.9 percent to 6.3 percent of new leases.

Manhattan’s smallest and tightest major submarket, Midtown South, continues to perform robustly. Its vacancy rate of 5.2 percent remains the tightest of any central business district in the United States. Office tenants leased 6.5 million square feet through October—already 800,000 square feet more than in all of 2012.

On the investment sales side, average Midtown Class A prices have hit $1,123 per square foot, the highest in five years.  Buyers are also showing a healthy appetite for Class B properties, as the average price hit $425 per square foot in Downtown Manhattan and $583 per square foot overall in Manhattan.