C&W: Robust First Half Sets Stage for Strong 2013 in Manhattan

Leasing volume is up 11 percent year over year, average Class A asking rents top $75 per square foot in Midtown South and an average $178 million office sale price signals "the return of the mega-deal."
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Courtesy of Flickr user Manu_H

First-half results for the major commercial real estate markets are trickling in, and if the last six months are any indication, the nation’s biggest office market is on track for a strong 2013, Cushman & Wakefield Inc. reported on Tuesday.

“We are on pace to have a healthy leasing market this year,” said Ron Lo Russo, president of Cushman & Wakefield’s New York tri-state region, at a Tuesday morning briefing in Midtown Manhattan. Leasing volume rose 11.1 percent to 12.4 million square feet during the first half, he added.

Vacancy is on the rise, too, but that primarily reflects the completion of new development projects. In yet another encouraging sign for owners, more tenants are in the hunt for space than in 2012—almost 15 million square feet worth, up from 8.9 million square feet last year, Lo Russo said.

Driving this activity is New York City’s employment market, which ranks second only to Houston’s as an engine for job growth. Since the end of the recession, New York City has gained about 275,000 jobs, nearly twice as many as it lost during the downturn, reported Ken McCarthy, Cushman & Wakefield’s chief economist for the New York City metropolitan area. The strongest job markets are growing in either technology (New York City, Boston, San Francisco and San Jose) or in energy (Dallas, Houston and Denver), McCarthy noted.

One traditionally strong sector where New York City has room for improvement is financial services, which has shed 3,500 jobs since August 2011. Nationwide, McCarthy is projecting “about six more months of sluggish growth, but after that we’re going to see the economy pick up”—probably at a pace of about 3 percent to 3.5 percent in 2014, he said.

In Manhattan’s office sector, all three major submarkets posted gains in leasing during the first half. Midtown South, which was repeatedly called Manhattan’s hottest submarket at the briefing, recorded a 7.2 percent vacancy rate—lowest of any central business district in the United States. For the first time ever, average Class A asking rents in Midtown South beat Midtown’s, reaching $75.63 per square foot. Jamie Katcher, a Cushman & Wakefield senior director, cautioned that the result is skewed by the difference in scale. Midtown’s 324-building, 182.9 million-square-foot inventory is several times as large as Midtown South’s, which has only 29 Class A office buildings and 15.6 million square feet of space.

In other first-half highlights:

  • Midtown Manhattan tallied some 7.6 million square feet of new leases, more than half of Manhattan’s total, representing a 17.6 percent year-over-year surge. Average asking rents edged up 2.6 percent, to $68.20 per square foot, while Class A asking rents rose 2.7 percent to $73.63 per square foot. 17.6 percent surge in new leasing compared to the same time last year.
  • In Downtown Manhattan, average asking rents jumped 14.7 percent year over year to about $46 per square foot, while Class A asking rents reached nearly $51 per square foot, a 12 percent increase that was the largest for Manhattan’s three submarkets.
  • Downtown Manhattan’s vacancy also jumped, from 8 percent a year ago to 11.6 percent. Frank Cento, a Cushman & Wakefield executive director and Downtown specialist, attributed that increase primarily to vacancy at Brookfield Place, which includes four office buildings neighboring the World Trade Center. Longtime owner Brookfield Office Properties Inc. recently re-branded the complex, previously known as the World Financial Center.
  • “The first half of 2013 was a very exciting time in the Manhattan capital markets with the return of the mega-deal,” said Helen Hwang, executive vice president for the New York City capital markets group. The investment sales market is slower paced this year—only 83 closed transactions this year, well behind last year’s pace, which produced 309 deals. But the average deal is much bigger–$178 million, compared to $86 million last year, Hwang added.